Tuesday, 31 March 2020

Pricing: Understanding and Capturing Customer Value

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Pricing: Understanding and Capturing Customer Value


Price represents the value that is exchanged in a marketing transaction. A marketer usually
sells a specific combination of need-satisfying product or service, and additional services
like warranty or guarantee.
Pricing should never be seen as an isolated component of a company’s marketing decisionmaking.
Companies spend large amounts of money on product development, promotion,
and distribution and face risks.
Price is often the only marketing mix element that can be changed quickly to respond to
changes in demand or competitive moves.
Pricing objectives focus on what a company wants to achieve through establishing prices.
These objectives should be clear, concise, and understood by all involved in pricing
decisions. Pricing objectives affect decisions in various other functional areas such as
finance and production etc.
A number of different internal and external factors affect pricing decisions and this may
pose some complexity. In general, there is uncertainty about how consumers, competitors,
resellers etc. would react to prices.
There are specific pricing strategies like price skimming, penetration pricing, loss leader
pricing, superficial pricing, special event pricing, psychological pricing, etc.
Prices can be decided by analyzing the firm’s costs through different pricing methods like
full cost methods, target return pricing method and marginal cost method. These methods
do not take care of the market condition and current market structure for making a decision.
However the second category of methods is competition based or market based methods,
in which the prices are decided on the prevailing market condition and customary pricing
methods.


Going Rate Pricing: In this method, the firm bases its price on what the average price of the
product is in the industry or prices charged by competitors
Odd-even Pricing: In this method, the buyer charges an odd price to get noticed by the consumer.
A typical example of odd pricing is the pricing strategy followed by Bata.
Perceived Value Pricing Method: In this method, prices are decided on the basis of customer’s
perceived value. They see the buyer’s perceptions of value, not the seller’s cost as the key
indicator of pricing. They use various promotional methods like advertising and brand building
for creating this perception.
Price: Price is the exchange value of goods and services in terms of money.
Psychological Pricing: In this method, the marketer bases prices on the psychology of consumers.
Many consumers perceive price as an indicator of quality. While evaluating products, buyers
carry a reference price in their mind and evaluate the alternatives on the basis of this reference
price. Sellers often manipulate these reference points and decide their pricing strategy.
Sealed Bid Pricing: In this method, the firms submit bids in sealed covers for the price of the job
or the service. This is based on firm’s expectation about the level at which the competitor is
likely to set up prices rather than on the cost structure of the firm.
Target Return Pricing: In this method, the firm decides the target return that it expects out of
business and then decides prices.

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