ch 8 mktg 3325

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Pricing Strategies

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Terms in this set (11)

Customer Based Pricing
Competition Based Pricing
Cost-Based Pricing

Focus on the "cost" side of the business and not the demand side

Ignores the customer and what the competitors are charging

Have to remember that cost sometimes serves as an indicator of quality (i.e., low cost might signal low quality)

Should perform a break-even analysis to determine break-even point (i.e., total cost/total revenue equal)
Some costs to consider are fixed (i.e., rent, executive salaries) and variable costs (i.e., materials, labor)

Cost-plus pricing = add markup to cost

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Pros of Cost-Based Pricing

Calculations to determine price are simple
During price setting unknowns are taken into account
Pricing ensures total profits for the business

Cons of Cost-Based Pricing

Ignores how customer demand affects price
It doesn't take into account actions by competition
Price setting cannot be solely based on costs

Competition-Based Pricing

Focus on what competitors are charging their customers

Must decide how to price given the range of competitor pricing

Pros of Competition-Based Pricing

It keeps an eye on existing and emerging rivals in the industry and provides smart data to make more effective pricing decisions

Setting the right price according to market state helps gain competitiveness

Cons of Competition-Based Pricing

You risk loosing profits if you do not take into account information on your purchase price and margins

You need to check on your price elasticity

It needs an effective price monitoring system. Automation is key in this respect to avoid manual tracking