Page 79 - EBOOK DPM 10013 POM-FINAL 25.10.2021

6.1 Major Pricing Strategies

Three methods of pricing are cost-based pricing, value-based pricing and competition-

based pricing.

A. Customer value-based pricing

 The maximum price (price ceiling) that a customer is prepared to pay for a product

is determined by their appraisal of the product's value.
 There will be no market for a product with a price above the ceiling.

 As a result, producers may need to consider consumer-perceived product value-

based pricing.

 The perceived benefit that a consumer receives from a product in exchange for the

costs that the customer must bear is referred to as value.
 Customers' perceived value of a product is taken into account in value-based

pricing.

 It does not price on the basis of the seller's cost.

 The value can be determined by the customer's opinion of the product image,

features, quality, and added services, among other things.
B. Cost-Based Pricing

 Cost-based pricing suits companies that want to maintain low costs and therefore

charges low prices to consumers.

 The low price is to beat other competitors in the market to gain a larger market
share. The two types of cost-based pricing:

a) Mark-up pricing – selling price is calculated by adding to the cost of a

product a standard mark up for profit and for expenses not covered in
cost.

b) Break even pricing – break-even quantity is the sales quantity when the

company’s total revenue just covers the costs. Profits are not made at this

point. Additional quantity sold beyond that break-even point will bring
profit to the company

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