marketing
Sedra 
mktch10.pdf
Price is the amount of money charged for a product or service. It is the sum of all the values that consumers give up in order to gain the benefits of having or using a product or service.
What Is a Price?
Considerations in setting prices
Major Pricing Strategies
• Value-based pricing is customer driven
• Cost-based pricing is product driven
• Competition-based is competitors driven
Major Pricing Strategies
Customer Value-Based Pricing
Major Pricing Strategies
Fixed costs
Variable costs
Total costs
Cost-Based Pricing
Types of costs
Fixed costs are the costs that do not vary with production or sales level
• Rent
• Interest
• Executive salaries
• Insurance
Variable costs are the costs that vary with production or sales level
• Package
• Delivery
Major Pricing Strategies
Customer Value-Based Pricing
Everyday low pricing (EDLP) involves charging a constant everyday low price with few or no temporary price discounts.
Copyright © 2016 Pearson Education, Inc. 10-13
Major Pricing Strategies
Customer Value-Based Pricing
High-low pricing involves charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items.
Department stores such as Sears and Macy’s practice high-low pricing by having frequent sale days, early-bird savings, and bonus earnings for store credit-card holders.
Copyright © 2016 Pearson Education, Inc. 10-14
Major Pricing Strategies
Customer Value-Based Pricing
Value-added pricing attaches value-added features and services to differentiate the companies offers and thus their higher prices.
For example, even as frugal consumer spending habits linger, some movie theater chains are adding amenities and charging more rather than cutting services to maintain lower admission prices.
Copyright © 2016 Pearson Education, Inc. 10-15
Other Internal and External Consideration Affecting Price Decisions
Pure competition
Monopolistic competition
Oligopolistic competition
Pure monopoly
Competition
• Under pure competition
-many buyers and sellers trading in a uniform commodity, such as wheat, copper, or financial securities. No single buyer or seller has much effect on the going market price. Thus, sellers in these markets do not spend much time on marketing strategy.
• Under monopolistic competition, the market consists of many buyers and sellers who trade over a range of prices because sellers can differentiate their offers to buyers.
• Under oligopolistic competition, the market consists of only a few large sellers.
• For example, only four companies—Verizon, AT&T, Sprint, and T-Mobile—control more than 90 percent of the U.S. wireless service provider market. Each seller is alert and responsive to competitors’ pricing strategies and marketing moves.
• In a pure monopoly, the market is dominated by one seller.
• The seller may be a government monopoly (the U.S. Postal Service), a private regulated monopoly (a power company), or a private unregulated monopoly (De Beers and diamonds). Pricing is handled differently in each case.
