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$300. $499. Target Customer. $500. $499. Target Customer. Product’s Cost. Competitor’s Pricing. Market’s Sensitivity to Price (Demand). Cost-based Pricing. Foundation Product’s “ cost ” determines its price Strategies Cost-plus (mark-up)

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$300

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  1. $300 $499 Target Customer

  2. $500 $499 Target Customer

  3. Product’s Cost Competitor’s Pricing Market’s Sensitivity to Price (Demand)

  4. Cost-based Pricing • Foundation • Product’s “cost” determines its price • Strategies • Cost-plus (mark-up) • Predetermined amount (mark-up) added to its cost.

  5. Competition-based Pricing • Foundation • Price determined by competitor’s pricing • Strategies • Price Leadership • Highest market share • Competitors “follow” pricing

  6. Market-led Pricing • Foundation • Perceived customer demand (product or industry) • Strategies • Penetration (“buy” market share) • Low price (accept low margin) • Profit through volume • Price sensitive markets (elastic demand) • Skimming • Technology, innovative products • Recoup development costs • Positioning (quality/prestige) • Price insensitive market (inelastic demand) • Prestige • High price to support positioning

  7. Pricing Strategy • Estimate demand – sensitivity of target customer to price • Calculate cost – direct fixed & variable costs • Consider environmental factors - competitor actions, legal constraints, etc. • Set pricing objectives - profit maximization, revenue maximization, or price stabilization (status quo). • Determine pricing - select a pricing method, develop the pricing structure, and define discounts.

  8. Product’s Cost Competitor’s Pricing Market’s Sensitivity to Price (Demand)

  9. iPad $499 – $829

  10. Kindle Fire $?

  11. Media Tablets $499- $829 $199

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