ZIMSEC O Level Business Studies Notes: Marketing: Customer oriented pricing
- This is pricing based on the demand for the product and customer’s perceptions of the product’s value
- Various techniques are used
- Perceived value pricing- is where the price is chosen to position the product in the market
- A price is chosen which is consistent with the image of the product
What is consumer-based pricing?
Consumer-based pricing is the third common approach firms use to set their prices. In this case, the firm first sizes up its customers to determine how much each customer is willing to pay for its product or service and then charges the price each customer is willing to bear.
What is market-oriented pricing?
Often referred to as market-oriented pricing, it is comparing similar products being offered on the market. The seller then sets the price higher or lower, or even the same as their competitors depending on how well their own product matches up.
What is the best pricing strategy for your business?
After having presented the three major pricing strategies, let’s take a look at the first and most used one: Customer value-based pricing. Customer value-based pricing is considered to be the best pricing strategy, at least from a marketer’s point of view. Why? In the end, the customer decides whether a product’s price is right.
What are the advantages of customer-based pricing?
Customer-based pricing gives the company the flexibility to charge different prices to different customers, rising or falling to match the size of the customer's wallet. Theoretically, the firm can achieve a high volume of sales at the best possible margins.
What is customer oriented pricing in marketing?
Key Takeaways. Customer-driven pricing is a pricing strategy in which a company sets prices according to customers' perceived value of its products and services. To be effective, companies should consider how to best segment the market so that prices reflect those segments perceptions of value.
What is an example of customer-driven pricing?
If the cord of firewood costs the logger $100 to cut and deliver, in the heat of summer, maybe the customer-driven pricing number is $120. In the middle of winter, when people are desperate, maybe the "right" price is $200. Those customers then drive the price of the logs.
Who are price oriented customers?
They are interested in investing higher initial capital cost and then enjoy the cost free benefits in future. According to these customers this type of deal is like a long term investment with higher future profit.
What does cost oriented pricing mean?
Cost-oriented or cost-based pricing method is the purest form of pricing method. In this pricing method, a certain percentage of the desired profit is added to the cost of the product to obtain the final price of the product. The cost of the product is the total cost spent on the production of the product.
What does it mean to be customer oriented?
Customer orientation is a business approach that puts the needs of the customer over the needs of the business. Customer-oriented companies understand that the business won't thrive unless it consistently improves customer focus. It's a way of thinking that aligns your business goals with your customers' goals.
Why customer based pricing is good?
Customer-based pricing gives the company the flexibility to charge different prices to different customers, rising or falling to match the size of the customer's wallet. Theoretically, the firm can achieve a high volume of sales at the best possible margins.
What are the 4 types of pricing methods?
There are 4 Pricing Methods that can help you put a price on what you sell: replacement cost, market comparison, discounted cash flow/net present value, and value comparison.
What are the types of cost oriented pricing?
Cost-oriented methods or pricing are as follows:Cost plus pricing:Mark-up pricing:Break-even pricing:Target return pricing:Early cash recovery pricing:Perceived value pricing:Going-rate pricing:Sealed-bid pricing:More items...
What are the 4 pricing strategies?
What are the 4 major pricing strategies? Value-based, competition-based, cost-plus, and dynamic pricing are all models that are used frequently, depending on the industry and business model in question.
What is profit oriented pricing?
What are profit-oriented pricing objectives? A profit-oriented pricing objective means that a company seeks to earn maximum profit with every sale or service provided, and achieve long-term business profitability.
What is cost oriented strategy?
Definition. Cost-oriented strategy is an approach to improving performance by reducing the costs per unit. The cost advantage can be used to improve profit margins or increase market share by cutting prices.[1]
Who uses demand oriented pricing?
The airline industry offers one of the most prominent, everyday examples of demand-based pricing. Flight prices fluctuate based on factors like timing and seasonality. For instance, airlines typically charge higher prices for tickets to Las Vegas on New Year's Eve than they do during most other times of the year.
What companies use market orientation?
Established businesses like Amazon and Coca-Cola use market orientation principles to improve or expand their products or services. Even consumer demands that are impractical today can inform long-range decision-making.
How do consumers determine price?
Price is dependent on the interaction between demand and supply components of a market. Demand and supply represent the willingness of consumers and producers to engage in buying and selling. An exchange of a product takes place when buyers and sellers can agree upon a price.
What is profit oriented pricing?
What are profit-oriented pricing objectives? A profit-oriented pricing objective means that a company seeks to earn maximum profit with every sale or service provided, and achieve long-term business profitability.
What is customer orientation?
Customer orientation is an approach to running a business that prioritizes customers and their needs over those of the business. The goal of customer-oriented companies is to satisfy customer’s needs to retain them for longer. Customer orientation also helps companies attract customers to their offer naturally.
How to implement customer orientation?
How did you feel reading about all those fantastic examples of customer orientation marketing in actual organizations?
Why is it important to focus on customer needs?
Focus on meeting the needs of your customers and solving their problems to tailor your offer. It increases customer’s loyalty and their lifetime value.
What is the most popular contact method for online customers?
Live chat is becoming the leading contact method for US online customers—42% of them prefer chat vs. email (23%), and businesses that use them notice a boost in sales, revenue, and customer loyalty.
Is customer orientation possible?
Finally, customer orientation is only possible to achieve if your organization fosters the right skills. Here’s a selection of abilities you can master yourself or develop in employees and managers to build a truly customer-oriented culture.
Is Zappos a customer orientation company?
You can’t discuss customer orientation without mentioning Zappos. The company relies more on customer service than any type of advertising.
Why is customer based pricing important?
Customer-based pricing gives the company the flexibility to charge different prices to different customers, rising or falling to match the size of the customer's wallet. Theoretically, the firm can achieve a high volume of sales at the best possible margins. However, an obvious problem with this pricing approach is that it inevitably alienates those customers who end up paying more than the successful hagglers. In the case of car purchases, many economic studies have shown that minority men and women have to pay up to $1,060 more than white males for the same car. 6 The backlash against this discriminatory practice contributed to the enormous success of GM's no-hassle, no-haggle sales policy on its Saturn line in the 1990s.
Why is pricing important in industries?
In these kinds of industries, pricing can play a considerable role because of a low variable cost and a wide dispersion in the consumer's willingness to pay. Companies with this kind of cost structure can set prices in ways that either harm profitability or enhance it.
How does a car dealer set their price?
In this case, the firm first sizes up its customers to determine how much each customer is willing to pay for its product or service and then charges the price each customer is willing to bear. Car dealers often take this approach. 5 A dealer typically displays a high sticker price for a car, which is nothing more than a wished-for price intended to frame the value of the car for the customer. Then a salesperson takes the prospective buyer out for a test drive. In the process, the salesperson gathers information about the customer's job, hobbies, family, and so on to help size up how serious the shopper is about the car and how price-sensitive he might be. When the salesperson senses that price is not a primary concern or that the customer is not a deft haggler, he will typically give all kinds of reasons for not being able to bring down the list price much. However, if the salesperson senses that the price is the obstacle to closing the deal, the salesperson will offer a better discount—but only after securing the "reluctant" approval of a mysterious boss behind a closed door and shaded windows.
What is a high relative price?
A high relative price is a problem for the buyer personally. No one wants to think of himself as a sucker, but for a professional buyer, the damage wrought by overpaying isn't only to his pride; it can also hurt his career. He may suffer professionally if he is exposed as less skillful than his peers.
What is the difference between undisciplined and sophisticated managers?
An undisciplined manager might seek a quick "high" in volume through an unsustainably low price. On the other hand, a more sophisticated manager might take advantage of the situation by designing a creative pricing structure to attract a certain kind of profitable customer.
Why is price important?
Price is also becoming more important because product differentiation is harder to achieve in many industries. For example, most desktop or laptop computers have "Intel Inside" and run Microsoft Windows.
What are the consequences of discriminatory pricing?
In business-to-business markets, discriminatory pricing can also easily alienate a firm's best customers, with detrimental long-term consequences. The worst is that over time, discriminatory pricing can train the customers to become aggressive bargainers.
What is customer value based pricing?
So what’s the definition of customer value-based pricing? Customer value-based pricing uses buyers’ perceptions of value (not the seller’s cost!) as the key to pricing. Customer value-based pricing is setting price based on buyers’ perceptions of value. Therefore, the marketer cannot design a product and marketing programme and afterwards set the price. Instead, price is an integral part of the marketing mix – it is determined before the marketing programme is set.
What is the best pricing strategy?
After having presented the three major pricing strategies, let’s take a look at the first and most used one: Customer value-based pricing. Customer value-based pricing is considered to be the best pricing strategy, at least from a marketer’s point of view. Why?
What is good value pricing?
Good-value pricing is the first customer value-based pricing strategy. It refers to offering the right combination of quality and good service at a fair price – fair in terms of the relation between price and delivered customer value. Good-value pricing is mainly used for less-expensive products, for instance for less-expensive versions of established, brand-name products. To give an example, take a look at McDonald’s 1€ menu items. Likewise, every car company offers small, inexpensive models better suited to the strapped consumer’s budget. Even companies such as Ryanair can be considered to rely on good-value pricing. Granted, they offer much less value – but at even lower prices. Passengers flying the low-cost airlines won’t get much value, but pay a price matching that value.
What is value added pricing?
Value-added pricing, an alternative customer value-based pricing strategy, means attaching value-added features and services to differentiate the product and charging higher prices. In other words, you add features and thereby customer value – and in return you charge more for the value-added product. Therefore, value- added pricing does not aim at cutting prices to match competitors, but attaching value-added features to differentiate the products from competitors’ offers. The added value justifies a higher price in customers’ eyes.
Why Customer-Driven Pricing Works
Once the customer understands the unique value of a product, what do they expect to pay for it? What are they willing to pay for it? Customer-driven pricing works because it puts the emphasis on the customer, not the product. You set your price according to their expectations.
Know Your Customer Well
The key to success with customer-driven pricing is to understand your customer well. In order to do this, create a detailed customer profile that includes not only demographic information, but also attitudes, values, and behavior.
Other Ways to Add Value
In addition to how your product solves problems, there could be other types of the unique value it offers. For example, it might offer flexibility in pricing. While your competitors offer only one version, you offer a variety of versions at different price points so the customer can purchase the right one for them.
The Challenges of Customer-Driven Pricing
To create your customer profile, you’ll need to communicate with your audience and get their feedback so you can use this data to help you determine the right price. One challenge here is that people aren’t always honest about the price they’re willing to pay.
Offering True Value
The point of customer-driven pricing isn’t customer satisfaction, but to offer the best value possible for you and your customer. Base your pricing on the customer as a way to start a conversation with them and monitor as you start selling the product so you can make changes as needed.
Do you want to learn more about how to set your prices?
Check out my work with me page to see how I can help you learn how to market and sell your offers.
Are you in need of assignment help?
Are you a high school, college, or university student pursuing a diploma, bachelors, master’s, or Ph.D. degree? Sometimes, assignments and life can overwhelm you.
How does our student assignment help service work?
You fill all the paper instructions in the order form. Make sure you include all helpful materials so that our academic writers can deliver a perfect paper. It will also help to avoid unnecessary revisions. At this point, you can attach files that are provided for the assignment.
Get Professional Assignment Help Cheaply
Are you busy and do not have time to handle your assignment? Are you scared that your paper will not make the grade? Do you have responsibilities that may hinder you from turning in your assignment on time? Are you tired and can barely handle your assignment? Are your grades inconsistent?
Online Academic Help With Different Subjects
Students barely have time to read. We got you! Have your literature essay or book review written without having the hassle of reading the book. You can get your literature paper custom-written for you by our literature specialists.
Are your writers competent enough to handle my paper?
Our essay writers are graduates with bachelor's, masters, Ph.D., and doctorate degrees in various subjects. The minimum requirement to be an essay writer with our essay writing service is to have a college degree. All our academic writers have a minimum of two years of academic writing.
What if the paper is plagiarized?
We check all papers for plagiarism before we submit them. We use powerful plagiarism checking software such as SafeAssign, LopesWrite, and Turnitin. We also upload the plagiarism report so that you can review it. We understand that plagiarism is academic suicide.
When will I get my paper?
You determine when you get the paper by setting the deadline when placing the order. All papers are delivered within the deadline. We are well aware that we operate in a time-sensitive industry. As such, we have laid out strategies to ensure that the client receives the paper on time and they never miss the deadline.
What is market-based pricing?
Market-based pricing is when a price of a product is set according to current market prices for the same or similar products. In other words, market-based pricing means setting prices in line with your competitors and the prices of their products.
Why is market based pricing important?
A market-based pricing strategy can help businesses set a high price for their new products and later lower the price to be in line with competitors' offering. Ultimately, this method enables businesses to drive sales and higher profits.
What is market price?
The market price is the price that a product can be purchased or sold at. Market price is determined by a product's supply and demand, two factors that drive market value. A product arrives at its market price when the price of quantity supplied equals quantity demanded.
What happens if competitors make a mistake in pricing?
If they make a mistake in their pricing, it’s rather likely you will too. Competitor pricing has a certain stability toward it, but it’s extremely local and can lead to short-term thinking, as well as plenty of lost opportunities when it comes to expanding your customer base.
What does it mean when a company is the first to market?
This means that companies that are first to market are able to go about setting prices in the beginning . As the product life cycle continues and competitors enter the market, prices will have to adjust to match or beat competitors' prices. As always though, you shouldn’t get complacent with your pricing.
Why is it important to price your products according to market demand?
If an organization is able to price its offerings according to market demand, it stands a better chance of gaining market share . With higher demand, a company may offer higher prices even if similar products have a lower price, thereby introducing competitive price levels.
What are some examples of competitors?
File sharing platforms Box and Dropbox are great examples of competitors who have enacted market-based pricing. Both middle pricing tiers are within $5 of each other and offer very similar products.
What is demand oriented pricing?
What’s it: Demand-oriented pricing is a pricing strategy in which a firm adjusts its price to fluctuations in demand. This strategy is suitable for several cyclical or seasonal products. Usually, periods fall into two categories: peak periods and regular periods.
What are the factors that determine demand oriented prices?
Critical factors for consideration in setting demand-oriented prices are: Demand patterns . The company may divide it into two, peak season and regular season. For example, they charge a high price during the peak season and lower it during the regular season. Price elasticity of demand.
What is price elasticity?
Price elasticity of demand. It measures how sensitive demand changes when a company changes the selling price of its products. Setting high prices when demand is elastic will only drive customers away, and sales fall more drastically. Conversely, lowering prices when demand is inelastic will only go demand less.
What is market competitive conditions?
Market competitive conditions, including the pricing strategy by competitors. Firms may be reluctant to lower their prices if competitors do not. It only encourages customers to switch to competing products.
What is price discrimination?
If firms can identify consumers’ wants precisely, they may impose price discrimination. They charge high prices to consumers who are willing to pay high prices and low prices to others. Discrimination may apply based on customer groups, geographic areas, or time of purchase.
Why did companies adopt it?
Why did companies adopt it? Companies try to maximize profits by setting different prices based on their demand patterns. Consumers will pay different prices for the same product or service at other times.
Do hotels charge different prices during peak hours?
The periods may be days or even years. You may pay different prices for a train ticket during peak and regular hours. Likewise, hotels may charge different prices during the holiday season and regular season. You may find airlines offering low ticket prices during high demand and lower prices during regular seasons in the airline industry.
