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Chapter 14

Managing Pricing Decisions

Price is a core component of value. Value: ratio of the bundle of benefits a customer receives from an offering compared to the costs incurred by the customer in acquiring that bundle of benefits. Price or more specifically the customer’s perception the offering’s pricing – is a key determinant of perceived value. Elements of managing pricing decisions 1. Establish pricing objectives and related strategies 2. Select pricing tactics 3. Set the exact price 4. Determine Channel discounts and allowances 5. Execute price changes 6. Understand Legal considerations in pricing Establish pricing objectives and related strategies * Pricing objectives are the desired or expected result associated with a pricing strategy. Pricing objectives must be consistent with other marketing-related objectives as well as with the firm’s overall objectives for doing business. * Penetration pricing is a strategy adopted for quickly achieving a high volume of sales and deep market penetration of a new product. Under this approach, a product is widely promoted and its introductory price is kept comparatively low. * Price skimming: a product pricing strategy by which a firm charges the highest initial price that customers will pay. As the demand of the first customers is satisfied, the firm lowers the price to attract another, more price-sensitive segment. * Profit Maximization and Target ROI is the price elasticity of demand * Competitor-Based pricing: price war – stability pricing * Value pricing overtly attempts to take into account the role of price as it reflects the bundle of benefits sought by the customer. SELECT PRICING TACTICS After establishing pricing objectives and strategies, a company has to develop the pricing tactics that will be operate in the

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