Principles of Marketing : Chapter 10 . Pricing and capturing value.

Moving towards the only ‘P’ in the marketing mix that is PRICE. Charging a certain amount of money for the consumption or usage of a particular product or a service. Since Price is the only thing which a person sees at first glance
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"Consideration of setting price" is critically important for the companies to select the right pricing strategy. The price floor is the concept, where the company is getting no profit from it. That means the company is selling the product at the cost price. On the other side consumer perception of value means every consumer think that company is charging way more money than the product price should be. This process is known as the price ceiling. Now between price flooring and price ceiling, there are some factors which control these pricing strategies. Since looking at the competitor’s price, market demand and need of a market. You can set a middle price between flooring and ceiling. These are the factors which control the price in the marketplace.

Value-based pricing or value optimized pricing is a concept where the company sets a price on the basis of a value which they are providing it to the customers for e.g. A cost of making a painting is 10000 Pkr but the painter charges 20000 Pkr for it. That means the excess of 10000 Pkr is the value that he is providing to the customer.  This is mostly targeted towards the niche target market.
On the other hand, Cost-Based pricing is a strategy where you calculate the cost of a product and add profit in it. For e.g. making a laptop cost 50000 rupees, the retailer sells it for 55000, that’s mean he is making the profit of 5000 rupees from it. This is targeted towards differentiated or undifferentiated TM.

Good Value pricing strategy is the first strategy which is consumer-centric in nature. That means giving and charging the right price and quality to the customer. In Pakistani market, Huawei is doing GVP. As they are charging less price for excellent cell phones and with augmented services and quality.

Everyday low pricing is a strategy where you actually charge low price than normal products. Like muffins from Hyperstar will be everyday low priced because they know after a whole day they need to throw it away so they charge less so that they can be bought by the consumers. Walmart does EDLP.

Hi-Low pricing strategy where you initially charge a high price for a product and once the product is not popular anymore they shrink their prices to the minimum level.
Value-added price is a strategy where you give additional value with a particular product. Like Nestle Every day, you get a free mug with it. The free mug is the additional value. It can also be coupons or discount vouchers that the competitor is not giving it to you.

Lastly, we will be focusing on cost-based pricing. There are two types of CBP.
1) Fixed cost, a cost which remains constant irrespective the demand changes or production changes like rent or interest rate.
2)Variable cost means it varies with the level of production. For example, the amount of petrol I need in my car is dependent on the kilometer I drive. So it varies with the kilometer I drove, but the cost of per liter will remain same.