| Pricing: Understanding and Capturing Customer Value 299
Chapter 10 | Pricing: Understanding and Capturing Customer Value 299
TABLE | 10.1 Break-Even Volume and Profits at Different Prices
Unit Demand Needed Expected Unit Demand
Total Revenue
Price to Break Even
Total Costs* Profit (4) – (5) $14
at Given Price
530,000 ⫺$24,000 *Assumes fixed costs of $300,000 and constant unit variable costs of $10.
even. But at this high price, consumers buy too few toasters, and profits are negative. The table shows that a price of $18 yields the highest profits. Note that none of the prices pro- duce the manufacturer’s target return of $200,000. To achieve this return, the manufac- turer will have to search for ways to lower the fixed or variable costs, thus lowering the break-even volume.
Author In setting prices, the Comment
Competition-Based Pricing
company must also consider competitors’ prices. No matter
Competition-based pricing involves setting prices based on competitors’ strategies, costs,
what price it charges—high, low, or in- prices, and market offerings. Consumers will base their judgments of a product’s value on between—the company must be
the prices that competitors charge for similar products.
certain to give customers superior
value for that price. In assessing competitors’ pricing strategies, the company should ask several questions. First, how does the company’s market offering compare with competitors’ offerings in terms of customer value? If consumers perceive that the company’s product or service provides
Competition-based pricing
greater value, the company can charge a higher price. If consumers perceive less value rel- Setting prices based on competitors’
ative to competing products, the company must either charge a lower price or change cus- strategies, prices, costs, and market
tomer perceptions to justify a higher price.
offerings. Next, how strong are current competitors, and what are their current pricing strategies? If the company faces a host of smaller competitors charging high prices relative to the value they deliver, it might charge lower prices to drive weaker competitors from the market. If the market is dominated by larger, low-price competitors, the company may decide to tar- get unserved market niches with value-added products at higher prices.
Annie Bloom’s Books, an independent bookseller in Portland, Oregon, isn’t likely to win a price war against Amazon.com or Barnes & Noble—it doesn’t even try. Instead, the shop relies on its personal approach, cozy atmosphere, and friendly and knowledgeable staff to turn local book lovers into loyal patrons, even if they have to pay a little more. Customers writing on a consumer review Web site recently gave Annie Bloom’s five-star ratings, supported by the kinds of comments you likely wouldn’t see for Barnes & Noble: 10
For example,
Annie Bloom’s is not the biggest bookstore, nor the most conven- ient to park at, nor are the prices incredibly discounted, nor is the bathroom easy to find . . . however, [i]t is one of the friendliest bookstores in town. It is just big enough for a solid hour of brows- ing. And it has a talented, smart, and long-term staff with incred- ible taste. . . . You’ll find common best sellers here, but you’ll also find all those cool books you heard about on NPR or in Vanity Fair that you never see featured at Barnes & Noble. [It’s a] book-
store for the book crowd. . . . Good customer service here! Also,
Pricing against larger, low-price competitors: Independent
bookstore Annie Bloom’s Books isn’t likely to win a price war
be nice to the cat. PS: [It] has a kid’s play area in the back.
against Amazon.com or Barnes & Noble. Instead, it relies on outstanding customer service and a cozy atmosphere to turn
What principle should guide decisions about what price to
booklovers into loyal customers.
charge relative to those of competitors? The answer is simple in
300 Part Three | Designing a Customer-Driven Strategy and Mix
concept but often difficult in practice: No matter what price you charge—high, low, or in-between—be certain to give customers superior value for that price.
Author Now that we’ve looked at Comment the three general pricing
Other Internal and External Considerations
approaches—value-, cost-, and competitor-based pricing—let’s dig into
Affecting Price Decisions (pp 300–306)
some of the many other factors that Beyond customer value perceptions, costs, and competitor strategies, the company must affect pricing decisions. consider several additional internal and external factors. Internal factors affecting pricing
include the company’s overall marketing strategy, objectives, and marketing mix, as well as other organizational considerations. External factors include the nature of the market and demand and other environmental factors.
Parts
» | Marketing: Creating and Capturing Customer Value 3
» | Marketing: Creating and Capturing Customer Value 11
» | Marketing: Creating and Capturing Customer Value 13
» | Marketing: Creating and Capturing Customer Value 25
» | Marketing: Creating and Capturing Customer Value 29
» | Company and Marketing Strategy: Partnering to Build Customer Relationships 37
» | Company and Marketing Strategy: Partnering to Build Customer Relationships 41
» | Company and Marketing Strategy: Partnering to Build Customer Relationships 43
» | Company and Marketing Strategy: Partnering to Build Customer Relationships 51
» | Company and Marketing Strategy: Partnering to Build Customer Relationships 55
» | Company and Marketing Strategy: Partnering to Build Customer Relationships 57
» | Company and Marketing Strategy: Partnering to Build Customer Relationships 63
» | Analyzing the Marketing Environment 65
» | Analyzing the Marketing Environment 71
» | Analyzing the Marketing Environment 73
» | Analyzing the Marketing Environment 77
» | Analyzing the Marketing Environment 79
» | Analyzing the Marketing Environment 81
» | Analyzing the Marketing Environment 85
» | Analyzing the Marketing Environment 87
» | Analyzing the Marketing Environment 89
» | Managing Marketing Information to Gain Customer Insights 97
» | Managing Marketing Information to Gain Customer Insights 99
» | Managing Marketing Information to Gain Customer Insights 103
» | Managing Marketing Information to Gain Customer Insights 109
» | Managing Marketing Information to Gain Customer Insights 111
» | Managing Marketing Information to Gain Customer Insights 113
» | Managing Marketing Information to Gain Customer Insights 115
» | Managing Marketing Information to Gain Customer Insights 127
» | Managing Marketing Information to Gain Customer Insights 131
» | Consumer Markets and Consumer Buyer Behavior 133
» | Consumer Markets and Consumer Buyer Behavior 137
» | Consumer Markets and Consumer Buyer Behavior 141
» | Consumer Markets and Consumer Buyer Behavior 143
» | Consumer Markets and Consumer Buyer Behavior 159
» | Consumer Markets and Consumer Buyer Behavior 163
» | Business Markets and Business Buyer Behavior 165
» | Business Markets and Business Buyer Behavior 175
» | Business Markets and Business Buyer Behavior 179
» What is Eaton’s value proposition?
» | Customer-Driven Marketing Strategy: Creating Value for Target Customers 189
» | Customer-Driven Marketing Strategy: Creating Value for Target Customers 193
» | Customer-Driven Marketing Strategy: Creating Value for Target Customers 197
» | Customer-Driven Marketing Strategy: Creating Value for Target Customers 203
» | Customer-Driven Marketing Strategy: Creating Value for Target Customers 205
» | Customer-Driven Marketing Strategy: Creating Value for Target Customers 207
» | Customer-Driven Marketing Strategy: Creating Value for Target Customers 209
» | Customer-Driven Marketing Strategy: Creating Value for Target Customers 211
» | Customer-Driven Marketing Strategy: Creating Value for Target Customers 213
» | Customer-Driven Marketing Strategy: Creating Value for Target Customers 219
» | Products, Services, and Brands: Building Customer Value 223
» | Products, Services, and Brands: Building Customer Value 225
» | Products, Services, and Brands: Building Customer Value 229
» | Products, Services, and Brands: Building Customer Value 237
» | Products, Services, and Brands: Building Customer Value 245
» | Products, Services, and Brands: Building Customer Value 247
» | Products, Services, and Brands: Building Customer Value 249
» | Products, Services, and Brands: Building Customer Value 251
» | Products, Services, and Brands: Building Customer Value 257
» | New Product Development and Product Life-Cycle Strategies 259
» | New Product Development and Product Life-Cycle Strategies 271
» | New Product Development and Product Life-Cycle Strategies 273
» | New Product Development and Product Life-Cycle Strategies 279
» | New Product Development and Product Life-Cycle Strategies 281
» | Pricing: Understanding and Capturing Customer Value 289
» | Pricing: Understanding and Capturing Customer Value 291
» | Pricing: Understanding and Capturing Customer Value 295
» | Pricing: Understanding and Capturing Customer Value 299
» | Pricing: Understanding and Capturing Customer Value 305
» | Pricing: Understanding and Capturing Customer Value 307
» | Marketing Channels: Delivering Customer Value 339
» | Marketing Channels: Delivering Customer Value 347
» | Marketing Channels: Delivering Customer Value 351
» | Marketing Channels: Delivering Customer Value 367
» | Retailing and Wholesaling 373
» | Retailing and Wholesaling 377
» | Retailing and Wholesaling 379
» | Retailing and Wholesaling 393
» | Retailing and Wholesaling 395
» | Retailing and Wholesaling 397
» | Retailing and Wholesaling 401
» | Retailing and Wholesaling 405
» | Communicating Customer Value: Integrated Marketing Communications Strategy 407
» | Communicating Customer Value: Integrated Marketing Communications Strategy 411
» | Communicating Customer Value: Integrated Marketing Communications Strategy 413
» | Communicating Customer Value: Integrated Marketing Communications Strategy 415
» | Communicating Customer Value: Integrated Marketing Communications Strategy 429
» | Communicating Customer Value: Integrated Marketing Communications Strategy 433
» | Advertising and Public Relations 435
» | Advertising and Public Relations 439
» | Advertising and Public Relations 441
» | Advertising and Public Relations 443
» | Advertising and Public Relations 445
» | Advertising and Public Relations 447
» | Advertising and Public Relations 449
» | Advertising and Public Relations 453
» | Personal Selling and Sales Promotion 463
» | Personal Selling and Sales Promotion 469
» | Personal Selling and Sales Promotion 471
» | Personal Selling and Sales Promotion 481
» How is the sales force at Nestlé Waters structured? outsells its top competitors.
» | Direct and Online Marketing: Building Direct Customer Relationships 495
» | Direct and Online Marketing: Building Direct Customer Relationships 499
» | Direct and Online Marketing: Building Direct Customer Relationships 507
» | Direct and Online Marketing: Building Direct Customer Relationships 509
» | Direct and Online Marketing: Building Direct Customer Relationships 515
» | Direct and Online Marketing: Building Direct Customer Relationships 525
» | Creating Competitive Advantage 527
» | Creating Competitive Advantage 529
» | Creating Competitive Advantage 537
» | Creating Competitive Advantage 549
» | The Global Marketplace 551
» | The Global Marketplace 553
» | The Global Marketplace 561
» | The Global Marketplace 573
» | Sustainable Marketing: Social Responsibility and Ethics 581
» | Sustainable Marketing: Social Responsibility and Ethics 583
» | Sustainable Marketing: Social Responsibility and Ethics 587
» | Sustainable Marketing: Social Responsibility and Ethics 595
» | Sustainable Marketing: Social Responsibility and Ethics 603
» | Sustainable Marketing: Social Responsibility and Ethics 605
» | Marketing by the Numbers A21
» | Marketing by the Numbers A27
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