Chapter Eight

Value-Based Pricing and Pricing Strategies

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Value-Based Pricing and Pricing Strategies

• Value-based pricing

• Price-margin management

• Product life-cycle pricing strategies

• Pricing and profitability

• Price elasticity and profitability

• Price and break-even analysis

• Product line pricing

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Value-Based Pricing

• Value-in-use pricing

• Perceived-value pricing

• Performance-based pricing

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Value-In-Use Pricing

Figure 8-2 Price Is Only the Tip of the Iceberg

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Performance-Based Pricing

Figure 8-7 Performance-Based Pricing Customer Preferences

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Price-Margin Management

Figure 8-10 McKinsey’s Waterfall

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Product Life-Cycle Pricing Strategies

Figure 8-12 Product Life-Cycle Pricing Strategies

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Market-Based Pricing Strategies

• Skim pricing

• Value in-use pricing

• Perceived value pricing

• Segment pricing

• Strategic account pricing

• Plus-one pricing

At what stages in the PLC should these strategies be employed?

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Skim Pricing

• Favorable Conditions– Considerable differentiation– Quality-sensitive customers– Sustainable advantage– Few competitors– Few substitutes– Difficult competitor entry

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Penetration Pricing

• Favorable Conditions– No/limited differentiation– Price-sensitive customers– No sustainable advantage– Many competitors– Many substitutes– Easy competitor entry

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Price Elasticity

% Change Volume

% Change Price

Price Elasticity =

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Price Elasticity and Performance

Figure 8-23 Price Elasticity — Volume, Sales, and Profitability

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Price Elasticity Guidelines

Figure 8-25 Guidelines for Estimating Price Elasticity

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Price and Break-Even Analysis

Break-Even Volume = Fixed Expenses

Margin per Unit

Break-Even Market Share = Break-Even Volume

Market Demand

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Product Line Pricing

• How could a marketer– Price substitute products?– Price complementary products?

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Review

• Value-based pricing

• Price-margin management

• Product life-cycle pricing strategies

• Pricing and profitability

• Price elasticity and profitability

• Price and break-even analysis

• Product line pricing

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