Week 10: Pricing / Customer Cost
Learning objectives
- Explain price as customer cost, not only a number on a tag.
- Compare new-product and product-mix pricing approaches.
- Recognize price-adjustment tactics and a general pricing logic.
Price is the amount charged for a product or service — and from the buyer's view, the sum of values exchanged for the benefits of having or using it (customer cost). It is the only marketing-mix element that produces revenue directly.
General pricing model (logic flow)
- Set pricing objectives (survival, current profit, market share, product quality leadership, etc.).
- Determine demand (price sensitivity, elasticity intuition).
- Estimate costs (floor).
- Analyze competitors' prices and offers.
- Select a pricing method (cost-plus, value-based, competition-based).
- Select the final price — with psychology and policy in mind.
New-product pricing
- Market-skimming — High initial price to skim layers of willingness to pay (needs quality image and enough buyers).
- Market-penetration — Low initial price to attract many buyers and win share (needs cost advantage and elastic demand).
Product-mix pricing
Product-line pricing, optional-product, captive-product (razors/blades logic), by-product, and product-bundle pricing help optimize the mix rather than isolated SKUs.
Price adjustment strategies
Discount and allowance pricing, segmented pricing, psychological pricing, promotional pricing, geographical pricing, dynamic pricing, and international pricing. Ethics and legal constraints matter — deceptive pricing damages trust and may violate rules.
Pakistan example
Ramadan promotional pricing and deal-of-the-day apps train some shoppers to wait for discounts — which can erode reference prices. Value-based pricing for a trusted herbal or organic product may hold better than endless undercutting, if quality claims are credible.
Key terms
- Value-based pricing
- Setting price based on buyers' perceptions of value rather than only seller cost.
- Price skimming
- Setting a high price for a new product to skim maximum revenues layer by layer.
- Captive-product pricing
- Pricing products that must be used with a main product.
- Reference price
- Price buyers carry in mind and refer to when evaluating a product.
Self-check
- When does penetration pricing backfire?
- How does captive-product pricing show up in printers or gaming ecosystems?
- Why is cost-plus pricing popular yet strategically incomplete?
- Give a psychological pricing example and critique it.