Vorlesung 12 Pricing

Pricing is the amount of money that you can charge for your products

Price elasticity describes the change in consumption of a product in relation to a change in its price

A 3-step pricing strategy to determine the product price by adding a fixed percentage (markup) to the unit cost:

1. . Calculating total cost fixed costs + variable costs

2. Calculating unit cost unit cost/number of units

3. Calculating markup price unit cost * markup percentage

The selling price is the result of markup cost + unit cost

A 3-step pricing strategy to determine the product price by adding a fixed percentage (markup) to the unit cost:

1. Calculating total cost fixed costs + variable costs

2. Calculating unit cost unit cost/number of units

3. Calculating markup price unit cost * markup percentage

The selling price is the result of markup cost + unit cost

• Value based pricing is a strategy of setting prices based on the customer’s perceived value of the product

• It proves the customers willingness-to-pay, which is the maximum amount a customer would pay for a product or service

• Because of price sensitivity, value based pricing is not a hard number but an approximation

• Value based pricing can lead to higher margins (profits) to the cost of a complex implementation, requiring a detailed understanding of the product’s market

• Competitive pricing is a strategy to set price points for a product or service based relative to competition in the market

• Prices can be set above, at or below competition. This depends on features and value compared to competition

• Competitive pricing is used more often in established markets with lots of competition

• A pricing strategy for product launch, the first phase of the product lifecycle

• Price skimming increases product prices at the product launch to benefit from a early adapter’s willingness to pay more at an early stage. Later, prices are decreased in multiple steps

• This strategy is at the opposite to penetration pricing

• Pricing skimming is often found in high tech and consumer tech industries, such as

  • Machines for new manufacturing or recycling processes

  • High quality mobile phones

  • TVs

  • Personal Computers

• A pricing strategy for product launch, the first phase of the product lifecycle

• Penetration pricing keeps product prices at the product launch low to increase market share. Later, prices are increased in multiple steps

• This strategy is at the opposite to skimming

• Penetration pricing is often found in the following industries:

  • Internet service provider

  • Services that become more valuable by growing communities, e.g. ads on social networks

• Economy pricing is a strategy that gives products with low production cost a lower price in order to sell a large volume

• It is also known as volume-based pricing

• The strategy can be effective, especially for generic products such

  • Grocery goods

  • Food

  • Retail outlets

  • Budget airlines and hotels

• Dynamic pricing is a general term for different strategies to adapt prices dynamically and mostly automated

• Pricing from a seller’s point of view by making assumptions of the own bargaining power

• Also known as surge pricing, demand pricing or time-based pricing

• Often used in the industries of hospitality, retail, electricity fuel, public transportation (air transportation, rideshare such as Uber