Pricing

 Price is :
 The amount of money charged for a product
or service
 The sum of the values that consumers
exchange for the benefits of having or using
the product or service.
 The only marketing mix element that
produces revenue. All others represent cost.
 Pricing and price competition as the number-
one problem facing marketing executives.
Factor affect pricing decisions
Factor affect pricing decisions
Marketing Mix Strategy: Price must be coordinated with
product design, distribution, and promotion decisions to
form a consistent and effective marketing program
Factor affect pricing decisions
Cost: covers its costs for producing, distributing, and
promoting the product, and delivering a fair rate of return
to investors.
 Fixed costs. Costs that do not vary with production or
sales level.
 Variable costs. Costs that vary directly with the level
of production.
 Total costs. Costs that are the sum of the fixed and
variable costs for any given level of production.
Factor affect pricing decisions
Cost subsidization: Some services need to consider the
guarantee spending or costs to third parties to ensure the
business operate as usual.
What are the cost subsidization for Tour operator?
Factor affect pricing decisions
Organisational Consideration: Top management set the
price, not marketing or sales department
Factor affect pricing decisions
 Marketing & Demand: Both consumer and channel
buyers such as tour wholesalers balance the product’s
price against the benefits it provides
Ex: Hotel rooms sell through Agoda, Selling products
through Amazon, Lazada, Tiki
Factor affect pricing decisions
 Consumer Perceptions of Price and Value: We can’t
see the value of our product. We can only set price.
The market value is set by our customers and our
ability to sell to it.
Factor affect pricing decisions
 Analyzing the Price–Demand Relationship:
The price elasticity of demand
Factor affect pricing decisions
 Analyzing the Price–Demand Relationship:
The price elasticity of demand
Factor affect pricing decisions
 Price Sensitivity:
 Unique Value Effect
 Substitute Awareness Effect
 Business Expenditure Effect
 End-Benefit Effect
 Total Expenditure Effect
 Hidden fees
 Factor affect pricing decisions
 Competitors’ Price and Offers:
 Price
compression occurs when the difference
between room rates for three- to four- and five-star
properties is not significant.
 Other External Elements: Economic factors, reseller
costs, government controls
Pricing Approaches

Cost-Base Break-Even
Pricing Pricing
Adding a standard markup Estimate the revenue and
to the cost of the product. pricing based on that figures

Value-Based Competition-Based
Pricing Pricing
Uses the buyer’s perceptions Setting price based largely on
of value, not the seller’s cost, following competitors’ prices
as the key to pricing. rather than on company costs or
demand.
Pricing Approaches
•Cost-Based Pricing
•The simplest pricing method is cost-plus pricing, which
is adding a standard markup to the cost of the product
•Markup pricing remains popular for many reasons
•Sellers are more certain about costs than about
demand
•Tying the price to cost simplifies pricing
•Managers do not have to adjust prices as demand
changes
Pricing Approaches
•Value-Based Pricing
•An increasing number of companies are basing their
prices on the products' perceived value
•Value-based pricing uses the buyers' perceptions of
value, not the seller's cost, as the key to pricing
•Value-based pricing means that the marketer cannot
design a product and marketing program and then
set the price
•Price is considered along with other marketing mix
variables before the marketing program is set
•The company uses the non-price variables in the
marketing mix to build perceived value in the buyers'
minds, setting price to match the perceived value
 Major Pricing Strategies

Customer Value-Based Pricing

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Pricing Approaches
•Break-Even Pricing
•The firm tries to determine the price at which it will
break even
•Target Profit Pricing
•A variation of break-even pricing
•Targets a certain return on investment
Pricing Approaches
 Break-Even Pricing
BE = Fixed Costs/Contribution (Selling Price – Variable Cost)
Ex: BE = $300,000/$10 ($20 Selling Price – $10 Variable Cost) = 30,000 meals
Pricing Approaches
•Competition-Based Pricing
•A strategy of going-rate pricing is the establishment of
price based largely on those of competitors, with less
attention paid to costs or demand
•The firm might charge the same, more, or less than
its major competitors
New Product Pricing
Strategies

Prestige
Pricing

Market- Market-
Penetration Skimming
Pricing Pricing
Price-Adjustment Strategies

Discriminatory Revenue
Pricing Management

 Discriminatory pricing: Segmentation of the market

and pricing differences based on price elasticity
characteristics of the segments
 Revenue management (new approach) involves the
development and use of different rate classes based on
the projected demand for the service.
Existing Product Pricing
Strategies

Product-Bundle Existing Product Price-Adjustment

Pricing Pricing Strategies Strategies
 Pricing Approaches
 Product Bundle Pricing:
 Customers have different maximum prices or
reservation prices they will pay for a product.
Packaging products, we can transfer the surplus
reservation price on one component to another
component of the package
 Ex:Themes park, entertainment, hotels, food &
beverage, transportation
 Theprice of the core product can be hidden to avoid
price wars or the perception of having a low-quality
product
Pricing Approaches
 Dynamic packaging: A package vacation on a single
Web site in which buyers can put together airline
flights, lodging, car rental, entertainment, and
tours in their own customer- designed packages.
 Customers have different maximum prices or reservation
prices they will pay for a product. Packaging products, we
can transfer the surplus reservation price on one
component to another component of the package
Psychological pricing
 Reference prices: Prices that buyers carry
in their minds and refer to when they look
at a given product
 Setting the price at reference price but
with different product features
 Price number: Each digit has symbolic and
visual qualities that should be considered in
pricing.
 Because the number 8 is round, it creates
a soothing effect, whereas 7 is angular,
creating a jarring effect.
Case: Quick, What are good price for...?
 Other Internal and External Consideration
Affecting Price Decisions

Economic conditions

Reseller’s response to
price

Government

Social concerns

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