Archive

Posts Tagged ‘Price’

Price, Value and Cost

By reading Philip Kotler Principles of Marketing, we can extract 3 definitions that can help on this topic:

Price:

The amount of money charged for a product or service, or the sum of the values that consumers exchange for the benefits of having or using the product or service.

Click on the image to enlarge

Cost:

Costs set the floor for the price that the company can charge for its product. The company wants to charge a price that both covers all its costs for producing, distributing and selling the product, and delivers a fair rate of return for its effort and risk. There are different classifications of costs. The more general one is the one that defines fiexed costs and variable costs. Fixe costs do not vary with production or sales level while variable costs vary directly with the levelo of production.

Value:

Buyers’ perceptions of a product value.

Defining prices:

Usually a combination of the 3 previous concepts is used to determine the price of a product. This concept should consider:

  • Product costs.
  • Competitors’ price and other external and internal factors.
  • Consumer perceptions of value.

According to that we can define 2 main pricing strategies:

  • Cost based pricing: Product driven process. The company designs what it considers to be a good product, totals de costs of making the product and sets a price that covers cots plus a target profit.
  • Value-based pricing: Customer driven process. The company sets its target price based on customer perceptions of the product value. The targeted value and price then drive decisions about product design and what costs can be incurred. As a result pricing begins with analysing consumer needs and value perceptions and a price is set to match consumers’ perceived value

Soutvr: Philip Kotler – Principles of Marketing, 3rd European Edition. p. 587

On the next video, we can see an interesting lecture from Philip Kotler at the London Business Forum where he states that:

Our job is to create, communicate and deliver value to a target market at a profit.


Categories: Uncategorized Tags: