Lektion 7: Value through Pricing

Setting prices based on the costs of producing, distributing, and selling the product plus a fair rate of return.

Cost + Mark-up = Price. Simple but ignores demand.

A pricing method where firms set prices based on what competitors are charging rather than on costs or demand. Easy to implement, but ignores own costs and doesn’t acknowledge your differentional advantage.

Setting prices based on the value perceived by the customer rather than the cost to the seller.

Determining what a customer is willing to pay first, then designing the product to match.

Setting a high price for a new product to skim maximum revenues layer by layer from the segments willing to pay the high price.

Launching a new games console at $600, then dropping to $400 later.

Setting a low price for a new product in order to attract a large number of buyers and a large market share.

Netflix offering low initial rates to build a massive subscriber base quickly.

The maximum price a customer should be willing to pay for a product, based on the savings or benefits it provides over its lifetime compared to a competitor.

A machine costs $10k more but saves $20k in energy; EVC justifies the higher price.

Pricing that considers the psychology of prices and not simply the economics; the price is used to say something about the product.

Higher price = Higher quality signal; $9.99 feels cheaper than $10.00.

A psychological pricing tactic where prices are set just below a round number (e.g., ending in .99) to make the product appear significantly cheaper.

Pricing a product at €2.99 instead of €3.00 creates a perception of better value.

The psychological tendency for consumers to judge the quality of a product based on its price, assuming higher price equals higher quality.

In a study, participants who took a $2.50 pill reported better pain relief than those who took a 10-cent pill, even though both were placebos.

The practice of influencing consumer value perceptions by presenting a price alongside a higher "reference" price (e.g., previous price or competitor's price).

"Was €100, Now €50" or placing a cheaper item next to an expensive one to make it look like a bargain.

A lower-priced brand introduced by a company to compete with low-cost competitors without damaging the image of its premium brand.

Intel launching Celeron chips to compete with cheaper rivals, protecting the Pentium brand.

Combining several products and offering the bundle at a reduced price.

Fast food "Value Meals" or Microsoft Office Suite.

Adjusting prices continually to meet the characteristics and needs of individual customers and situations.

Uber surge pricing or Airline ticket prices changing by the minute.

Selling below cost with the intention of driving competitors out of the market (illegal in many places).

A large chain dropping prices to bankrupt a local shop.

An illegal practice where competitors collude to set prices at a certain level, rather than letting market forces determine them.

Supermarkets and suppliers investigated for agreeing on minimum price levels for products like milk or cheese.

Misleading pricing practices that confuse or trick consumers, such as hidden fees or false price comparisons.

Airlines advertising a low flight price but hiding taxes and charges until the final booking stage.