...ARTICLE SUMMARY OF CUSTOMER VALUE-BASED PRICING STRATEGIES: WHY COMPANIES RESIST Basically this paper discussed the challenges that company faced in implementing the value based pricing strategy and recommendation how to win over other approaches namely cost-based pricing, and competition-based pricing. Costumer value-based pricing is defined as the factor in determining the product price is depend on the product value and service quality deliver to customers. In other word, the price of the product or service is depending on its performance. The more value customers perceive on the product, the more expensive the product will be. Meanwhile, cost-based pricing approach is the price of the product is gathered after the cost of the product is considered. On the other hand, competition-based approach is the price of the product is determined based on the price of competitors’ product. Normally, it follows the average markets price. In addition, each approach has its own strength. For instances, data for both cost-based and competition-based pricing are easy to access since it already available. While, customer value-based pricing is takes into consideration of customer perception in pricing its product or service. Thus, the segmented customers could afford to buy the product or service. Nevertheless, researcher found that the main strength of customer value-based pricing has competitive advantages over other two approaches especially in pricing of new product. But in reality, industries...
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...Differences Between Value-Based Pricing and Cost-Based Pricing Businesses have methods by which to price their products and services. Value-based pricing and cost-based pricing are two common strategies companies use to promote goods and services. Setting the right prices is the key to effective marketing as well as to long-term profitability. Both of these approaches have strengths and weaknesses relative to the other. When a company uses cost-based pricing, the company sets a price at a percentage above the cost it incurs to manufacture the product or to provide the service. Value-based pricing takes a different approach, considering the potential value the product or service will bring to its customers. Value-Based Pricing A value-based pricing company considers the value of its product or service, as opposed to the cost the company incurred to create and produce it. To do this, the company determines how much money or values its product or service will generate for the customer. This value could originate from factors such as increased efficiency, happiness or stability. Companies or individuals that produce medications, chemicals and computer programs and software and artwork often use this pricing strategy. Cost-Based Pricing Cost-based pricing uses manufacturing or production costs as its basis for pricing. The cost-based pricing company uses its costs to find a price floor and a price ceiling. The floor and the ceiling are the minimum and maximum prices for a specific...
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...Explain the differences between value-based pricing and cost-based pricing. Businesses have methods by which to price their products and services. Value-based pricing and cost-based pricing are two common strategies companies use to promote goods and services. Setting the right prices is the key to effective marketing as well as to long-term profitability. Both of these approaches have strengths and weaknesses relative to the other. When a company uses cost-based pricing, the company sets a price at a percentage above the cost it incurs to manufacture the product or to provide the service. Value-based pricing takes a different approach, considering the potential value the product or service will bring to its customers. Value-Based Pricing A value-based pricing company considers the value of its product or service, as opposed to the cost the company incurred to create and produce it. To do this, the company determines how much money or values its product or service will generate for the customer. This value could originate from factors such as increased efficiency, happiness or stability. Companies or individuals that produce medications, chemicals and computer programs and software and artwork often use this pricing strategy. Cost-Based Pricing Cost-based pricing uses manufacturing or production costs as its basis for pricing. The cost-based pricing company uses its costs to find a price floor and a price ceiling. The floor and the ceiling are the minimum and maximum prices...
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...PERCEIVED-VALUE PRICING An increasing number of companies now base their price on the customer’s perceived value. Perceived value is made up of a host of inputs, such as the buyer’s image of the product performance, the channel deliverables, the warranty quality, customer support, and softer attributes such as the supplier’s reputation, trustworthiness, and esteem. Firms use the other marketing program elements, such as advertising, sales force, and the Internet, to communicate and enhance perceived value in buyers’ minds. Many use perceived value to set prices, pricing at a premium, although a competitor’s prices might be lower. When a prospective customer asks why he should pay more, the answer is: Matched Price | if it is only equivalent to the competitor’s | $$$ | price premium for superior durability | $$$ | price premium for superior reliability | $$$ | price premium for superior service | $$$ | price premium for longer warranty | $$$ | normal price to cover superior value | – $$$ | Discount for loyal customers | $$$ | Adjusted price | The seller is able to show that although the customer is asked to pay a premium, he is actually getting far greater value! Ensuring that customers appreciate the total value of an offering is crucial. Even when a company claims its offering delivers more total value, not all customers will respond positively. Some care only about price but there is typically a segment that cares about quality. The key to perceived-value pricing...
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...MKT 500 Final Project Milestone Six: Marketing Strategy-Pricing Kroger Drive Thru and Online Grocery Shopping prices will be set using customer value-based pricing. We will use the buyers’ perceptions of the value they place on the convenience of online and drive-thru grocery shopping. We chose customer value based pricing because we can afford to allow the local Kroger shoppers set the price they believe they should pay for online and drive-thru grocery shopping. In addition, we will not have many variable costs in developing our product. Most of our costs will be fixed which will mean we can get a great estimate on the initial costs associated with bringing this service to market. Our fixed costs will be staffing and marketing efforts. We can put as little or as much into marketing as we deem necessary. The costs associated with marketing will not be very high; Kroger has a great online following on their mobile application and website. Any marketing we want to do can be achieved via the website and/or the mobile application. Staffing is also a fixed cost; we know that Ohio’s minimum wage is $8.10/hr. We anticipate when we bring this product to market we will have a large amount of customers who will try the service for the first time. In preparation for the launch we plan to staff at least four additional full-time customer service associates to help with the volume of orders we are expecting. We want to be competitive with other local grocery chains and...
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...Atlantic Computer: A Bundle of Pricing Options Names: ______________________________________________ 1. List the products to be evaluated and priced: _______________________ _______________________ 2. What is the reference product against which the above is to be evaluated? List the main incremental benefits over the reference product. Reference Product: ____________________________ Main Benefits: _____________________________________________________________________ __________________________________________________________________________________ Let’s work out some numbers now. 3. If Atlantic wanted to employ its current pricing policy of charging only for its servers and nothing for its software, what should be the prices for the products? Server Price: $___________________ briefly explain. PESA Price: $ ____________________ 4. If Atlantic wanted to employ a competition-based pricing and would charge the same price as its closest competitor is charging for the same performance, what would be the prices for the products (assume that you can charge separately for the server and the software): Hint: First calculate the total price the competition (the reference product) will charge for the same performance. Then split it to the server and software prices. Server Price: $___________________ PESA Price: $ ____________________ 5. If Atlantic wanted to employ a cost-based pricing, what would be the price for the products...
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...outcomes After completing the course students are expected Expected learning outcomes The student shall Have broad knowledge of * Competition Profile * Differences Between Product, Service & Experience * Product Life Cycles * Differentiation versus Commodification * Innovation and Product Development * Branding * Pricing Methods * Pricing Tactics Be able to apply * Competition profile as "brief" for product development * Strategies for Product Development * Management of Product Development * Pricing Understand * Differentiation and Commodification * Innovation and product development * Differences between products, services and experiences * Separation, "Detachment", the needs and solution information * Differentiation and Commodification * Innovation and product development * Differences between products, services and experiences * Separation, "Detachment", the needs and solution information * Innovation, product development against, for, with and by customer * Branding * Contents Content From need to offer; from value analysis of competitive profile; competitive profile as a brief for innovation and product Competition, competition profile (Unique Selling Points, Matching Points, Non Selling Points) Competition profile as "brief" for product development * Product, Service and Experience * Core Competence * Core Products * End...
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...recommended price. As it is shown on the table above, the economic value for the tests involving 11 ½" pads ranged from $1400 to $1900, which represents the maximum a customer would pay in either case. Because there is not enough data to adequately determine whether the true value for an 11 ½" pad is $1400 or $1900, we should select the lower of the two as the maximum price. Therefore, the upper price limit for PPP's curled metal pad is $1400. On the other hand, if PPP decides to price their product based only on material costs of the existing product, the price would be closer to $167 (6 CMI pads used, $1000 worth of asbestos pads). This results in a pricing range of $167 to $1400, with the lower price recovering fixed costs and a small profit. In choosing the optimal price, PPP should take advantage of the performance and operational benefits that its product offers. Not only are the pads more efficient and last longer, they are easier to handle, reaching temperature that are almost three times less then those of wooden pads. There was significant savings gained by using PPP pads in both tests, ranging from 29 to 35%. Customers should be willing to pay for these benefits, especially when presented to them in terms of their economic value. Therefore, PPP should price the product as close as possible to the economic value for the customer. In pricing the pads, PPP should follow the Consumer Value Pricing. For example, PPP could quote to the Colerick Foundation a relatively...
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...System 11)Feasibility Analysis i. Need for Feasibility Study ii. Technical Feasibility iii. Behavioral Feasibility iv. Economic Feasibility v. Product Perspective 12)Data flow diagram 13)Entity Relation Diagram 14)Data tables 15)Flow chart 16)Input forms 17)Conclusion 1. Introduction The project “Billing system” is an application to automate the process of ordering and billing of a “Departmental store” .This web based application is designed considering the chain of departmental store which is located in various cities. This application also administrates its users and customers. 2.Objective This project will serve the following objectives:1 2 3 4 5 6 7 Add and maintain records of available products. Add and maintain customer details. Add and maintain description of new products. Add and maintain new entered category of products. Provides economic/financial reports to the owner monthly or weekly and yearly. Provides a convenient solution of billing pattern. Make an easy to use environment for users and customers. 3. Project category RDBMS: The project is based on the concept of RDBMS (i.e. Relational Database Management System). “ A database which store data in the form of tables which has related with each other in as particular manner ”. 4.Types of reports 1. 2. 3. 4. 5. Daily Sales Report Monthly Customer Report Daily Product Report Due Date Report (Report of a particular Day) Billing Report...
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...The Diagnosis Related Group (DRG) uses ICD-9-CM diagnosis, procedure codes, and demographic information about the patient to sort inpatient hospital admission into one of originally 467 groups. The number grew to about 538 clinically related groups where it classifies similar consumption of hospital resources and the length of stay. This system was adopted by Medicare in 1983 to reimburse hospitals for inpatient admissions. Some hospitals are excluded from this form of reimbursement such as psychiatric hospitals, rehab facilities, long term and cancer hospitals. The CMS administers the DRG system and issues all the guidelines for it. DRG’s are updated on October 1st every year. This includes base rates, wage directories, establishment of new DRG’s and elimination of others. On October 1st, 2007, CMS established a new set of codes known as Medicare Severity Diagnosis Related Groups (MS-DRGs). These codes are more specific and take into account the severity of a patient’s illness and the resources used. As a result, a more suitable reimbursement is issued. There is about 750 MS-DRGs and 538 DRGs. The payment method used by Medicare for hospitals is known as DRG weight of one. Payments are made per admission where the hospital and payor agree on a base rate that is multiplied by DRG weight to determine reimbursement. Length of stay don’t factor in unless there is an outlier case. The Ambulatory Payment Classification (APC) system uses Current Procedural Terminology (CPT) and...
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...Healthcare Ecosystems LLT Task 2 Jacqueline Sanders Western Governors University Healthcare facilities are required to maintain licensure, certification, and accreditation in order to receive payments from federal government programs such as Medicare. Healthcare facilities must meet the minimum standards in order to operate, such as sufficient staffing, personnel employed to provide services, the quality of equipment, buildings, and supplies, and services provided, including health records. (LaTour, 2013) Medicare has developed Conditions of Participation and Conditions for Coverage, which identifies specific criteria that must be met in order to receive reimbursement from Medicare. Medicare implements these guidelines in order to set a standard for improving quality of care and maintaining the health and safety of its beneficiaries. (CMS, 2013) State agencies conduct annual surveys of licensed facilties to ensure they are operating at or above the minimum standards set forth by the sate and CMS. It is imperative for licensed healthcare agencies to meet the guidelines of the Conditions of Participation in order to receive reimbursement, if they do not meet the minimum standards they could be unable to participate with Medicare, thus losing patients and revenue. Physician Quality Reporting System requires healthcare providers and hospitals to meet clinical quality standards and record them. Physician Quality Reporting System is a program implemented by Medicare that...
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...Customer value-based pricing strategies: why companies resist Andreas Hinterhuber Andreas Hinterhuber is based at Hinterhuber and Partners, Innsbruck, Austria. Introduction Pricing has a huge impact on profitability. Pricing strategies vary considerably across industries, countries and customers. Nevertheless, researchers generally concur that pricing strategies can be categorised into three groups: 1. cost-based pricing; 2. competition-based pricing; and 3. customer value-based pricing. Of these, customer value-based pricing is increasingly recognised in the literature as superior to all other pricing strategies (Ingenbleek et al., 2003). For example, Monroe (2002, p. 36) observes that: ‘‘ . . . the profit potential for having a value-oriented pricing strategy that works is far greater than with any other pricing approach’’. Similarly, Cannon and Morgan (1990) recommend value pricing if profit maximisation is the objective, and Docters et al. (2004, p. 16) refer to value-based pricing as ‘‘one of the best pricing methods’’. Practitioners have also recognised the advantages of value-based pricing strategies. Several companies have successfully adopted such strategies. These include pharmaceutical companies such as Sanofi-Aventis, information technology companies such as SAP and Vendavo, wireless internet service providers such as the Australian company Xone, airlines such as Lufthansa, vehicle manufacturers such as BMW, and biotech companies such as Tigris Pharmaceuticals...
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...Evaluate the four pricing options available to Atlantic Computer. What would be the most effective pricing strategy for Atlantic Computer? Why? Jowers has four pricing options for Atlantic Computers. He must decide to either: 1) keep the company's tradition of charging for software and providing PESA software for free, 2) charge a price equal to what the customer would pay for four Ontario Zink servers, 3) charge a price based on a cost-plus approach to pricing PESA, or 4) charge a price based on value-in-use pricing. The traditional pricing strategy involving charging for software and giving the PESA software for free. This strategy does not allow major emphasis on developing and selling software tools tlo enhance their servers' performance. According to Bharadwaj & Gordon (2007), when the division has designed a small software management tool to help server administrators monitor the health of their systms and be attentive to repairs, this tool had not been viewed as a deal maker, as previous software tools were given away at no cost. The competition-based pricing strategy involves pricing your product to cover costs and is comparable to the competitor's price. To improve market penetration, the price must lure consumers toward your product and away from the competitor's product. For this approach to be successful, the company will most likely have to lower their price (Government of Alberta, 1999). This approach does not coincide with Jower's option of pricing the Atlantic...
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...software PESA due to growth in demand for basic servers. Important Details * competitor: ONTARIO ZINK * CAGR: 3%(BS segment) * TRONN along with PESA works FOUR times more efficiently. * Value of 2 TRONNs = Value of 4 ZINKs Four types of pricing strategies: * Competition based pricing * Cost plus pricing * Charging only for TRON * Value in use pricing RECOMMENDATION: The company should adopt COST PLUS PRICING with a price of $2245.5 because: * Charging for PESA would increase its value and act as a key feature * Although revenues will not be the highest, but the possibility is that the customers might not be willing to pay a very high price as in case of value in use. * It has a 30% margin which means that the company will surely make 30% profit CALCULATING PRICE IN EACH MODEL(* all calculations done based on assumptions and figures given in case) MARKET SHARE | 2001 | 2002 | 2003 | Total | Basic server | 50000 | 70000 | 92000 | 212000 | Market share | 4% | 9% | 14% | | Share | 2000 | 6300 | 12880 | 21180 | 1. Competition based pricing Price for 2 TRONN = 2 * $2000 = $4000 Price for 4 ZINK = 4 * $1700 = $6800 Acc to competition based pricing, Price for 2 TRONN= $6800 Price for 1 TRONN= $ 3400 2. Charging only for TRONN Price for 1 TRONN= $2000 3. Cost Plus Pricing total market share for 3 years= 21180 volume of market share with PESA (50%)= 10590 R&D costs = $2000000 Per unit cost of PESA= $2000000/10590 = $189 Add margin 30%=189+30% = 245...
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...Atlantic Computers: A bundle of pricing options In the case, it mentioned that, conservatively, one Tronn server equals to two Zink servers; Aggressively, one Tronn equals to four Zink servers. Within the premise that Matzer and his colleagues were quite conservative, he decided to compare two basic servers loaded with the PESA versus four basic servers. In this case, therefore, we calculate the price of Atlantic Bundle with the assumption that two Atlantic Bundles is the equivalent of four Ontario Zink servers. 1. * Status-Quo Pricing This pricing strategy considers only the cost of server and gives PESA software tool away for free. Therefore, the price of two Atlantic Bundles is $4,000. ------------------------------------------------- Price of 1 Tronn server $2,000 ------------------------------------------------- 2 Tronn servers + PESA software (Free) $4,000 This pricing strategy gives the lowest price. However, by giving PESA for free, there is no substantial difference between Tronn and Zink. This would be difficult for Atlantic Computer to gain market shares in the basic servers segment. * Competition Based Pricing Using price of competing products as a benchmark instead of considering own costs or the customer demand, we price the Tronn server based on the price of competitive server, Zink by Ontario, rather than considering costs and give PESA away for free. ------------------------------------------------- ...
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