Major Pricing Strategies — Transcript

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1. 0:03in this video we're going to take a look
2. 0:04at major pricing strategies
3. 0:09so when a marketer decides to set a
4. 0:12price for a product or service they have
5. 0:14many options to choose from and in this
6. 0:16pricing module we're going to be
7. 0:18discussing lots of different
8. 0:20pricing considerations and strategies so
9. 0:22a diagram is hopefully a helpful way to
10. 0:24keep all of these organized
11. 0:27in this video in particular we're going
12. 0:28to be looking at this top blue section
13. 0:30the major pricing strategies
14. 0:33these are customer value based pricing
15. 0:36cost based pricing and competition based
16. 0:39pricing sometimes these are referred to
17. 0:41as the three c's of pricing
18. 0:45in future videos we'll get into some
19. 0:46additional pricing considerations
20. 0:49let's look at the three c's of pricing
21. 0:53so first up is customer value based
22. 0:56pricing and in this approach
23. 0:58prices are set based on the buyers
24. 1:00perceptions of value rather than the
25. 1:03seller's cost rather than what it costs
26. 1:05the marketer to produce the offer
27. 1:07so first we need to
28. 1:09assess the needs
29. 1:11of customers and find out what things
30. 1:13they value
31. 1:15and then
32. 1:16make a target price based on this value
33. 1:19perception
34. 1:21and within customer value-based pricing
35. 1:23there's two general types of strategies
36. 1:26the first is good value pricing
37. 1:28meaning we're offering just the right
38. 1:30combination of quality and service at a
39. 1:32fair price
40. 1:34so in this way we've assessed the
41. 1:36customer's value and what they're
42. 1:38looking for is the lowest price possible
43. 1:42so everyday low price
44. 1:44stores like walmart or dollar stores
45. 1:48these are retailers that are following
46. 1:50the good value pricing
47. 1:52what they're doing is they're there's no
48. 1:54bells and whistles there's no added um
49. 1:57special features that are going to uh
50. 1:59rise raise the price what they're doing
51. 2:01is
52. 2:02uh almost you can see this in walmart's
53. 2:04slogan here always low prices that is
54. 2:06their that is their focus and that's a
55. 2:09good value pricing strategy
56. 2:12on the other hand we have value added
57. 2:14pricing in this sense when we've
58. 2:16assessed what the customers value maybe
59. 2:18there are particular things that a
60. 2:20customer is looking for in a market
61. 2:22offering that are going to raise the
62. 2:24price and they're willing to pay that
63. 2:26additional charge
64. 2:28and so whole foods would be a good
65. 2:30example of a grocery store that
66. 2:33takes a look what customers are looking
67. 2:34for delivers on that and charges a
68. 2:37higher price
69. 2:39so for example
70. 2:41whole foods offers
71. 2:43a responsibly farmed seafood selection
72. 2:46for for seafood and fish products and
73. 2:49that means that they're going to
74. 2:51specifically only source fish from
75. 2:54responsibly farmed
76. 2:56sources and of course that the price of
77. 2:58these products are going to be a little
78. 3:00bit higher but they recognize that this
79. 3:02is what a particular customer segment is
80. 3:05looking for
81. 3:07this would be a good example of value
82. 3:08added pricing
83. 3:12our next c based pricing is cost based
84. 3:15pricing now in this example we're
85. 3:17setting prices based on production
86. 3:19distribution and selling costs
87. 3:22and then setting costs
88. 3:24at that uh
89. 3:26setting a price that sort of reflects
90. 3:28that those um
91. 3:29total costs
92. 3:30so in this sense uh we're product driven
93. 3:34rather than value driven we're not
94. 3:36really focused on customers perception
95. 3:39of value because we're more looking at
96. 3:41what it costs internally to create this
97. 3:44offering within cost-based pricing
98. 3:47there's a few different uh
99. 3:50pricing strategies the first is cost
100. 3:53plus pricing which is also known as
101. 3:55markup pricing
102. 3:56so what happens in this situation is
103. 3:59that a standard markup to the is added
104. 4:01to the cost of the product you often see
105. 4:04this with uh specific services that are
106. 4:07provided
107. 4:08at a house or repair services
108. 4:11they might
109. 4:12have a a
110. 4:13cost an hourly cost and they're going to
111. 4:15add uh on top of that a standard markup
112. 4:18let's say 15 or 20 on top of
113. 4:22their cost and that's what they'll be
114. 4:24charging for their price
115. 4:26another strategy is break even pricing
116. 4:28so this means setting the price to break
117. 4:31even at a certain level of production
118. 4:34there are some simple and some more
119. 4:36complicated ways of getting to a
120. 4:38break-even price but basically what a
121. 4:40manufacturer's saying at that point is
122. 4:44they have set a price that allows them
123. 4:46to break even so in that sense the their
124. 4:48revenues will match their costs
125. 4:52then we have target return pricing and
126. 4:54in this example we're setting the price
127. 4:56in order to earn a targeted level of
128. 4:58returns
129. 5:00for example a company may look at the
130. 5:02upcoming quarter and say we'd like to
131. 5:05drive revenues up by let's say 10
132. 5:09if that's the case they'll make a
133. 5:10calculation to set their price in order
134. 5:12to
135. 5:14achieve a certain level of return
136. 5:17and factoring in what it costs
137. 5:19so again cost based pricing we've got
138. 5:21different options within here
139. 5:23but again the main
140. 5:25thing that links all these together is
141. 5:27that we are focused on costs when we set
142. 5:29the price
143. 5:32so if we were just to compare our first
144. 5:34two c's here cost versus
145. 5:36customer value based pricing
146. 5:38the approach with cost-based pricing
147. 5:40really starts with first designing a
148. 5:42good product or service
149. 5:44okay so what we're saying is we want to
150. 5:46design something that we expect
151. 5:47customers are going to
152. 5:49be interested in buying
153. 5:51then after that we determine what it
154. 5:53costs to produce this offering we set
155. 5:56the price based on that cost and again
156. 5:59there are options to set a break-even
157. 6:01price or
158. 6:03a set of return price
159. 6:06however we want to do it
160. 6:07and then our last step is to convince
161. 6:10buyers of the product or the market
162. 6:12offerings value
163. 6:14once we've set the price it's now the
164. 6:15marketer's job to again convince the
165. 6:18buyers the other way the customer
166. 6:21value-based pricing approach is almost
167. 6:23this these four steps in reverse
168. 6:26first of all we assess customer needs
169. 6:28and value perceptions that's our first
170. 6:30step
171. 6:31then we set a target price to match
172. 6:33those
173. 6:34perceptions or the customer's perceived
174. 6:36value
175. 6:38we determine the costs that we can incur
176. 6:41in order to set that target price
177. 6:43and then lastly we design our offering
178. 6:46to deliver that desired value at that
179. 6:49target price
180. 6:51again these these uh approaches are
181. 6:55almost
182. 6:56near each other in terms of the way we
183. 6:58set our price
184. 7:02our last c in pricing is competition
185. 7:05based pricing and in this case we're not
186. 7:08focused necessarily on customer value
187. 7:10we're not necessarily focused on costs
188. 7:13in this case we're we're looking at what
189. 7:15our competition is doing with regards to
190. 7:18their pricing
191. 7:19so
192. 7:20when we assess competitors
193. 7:22uh pricing there's a couple things that
194. 7:24we should be looking at first of all how
195. 7:26does our firm's offering compare in
196. 7:29terms of customer value
197. 7:31is it are we providing a lower end
198. 7:33product or service or a higher end
199. 7:35product or service and
200. 7:37as a reflection of that should we be
201. 7:38offering a
202. 7:41price that is more or less than what a
203. 7:44competition has said what are their
204. 7:46costs and what are their pricing
205. 7:48strategies and how should we
206. 7:50factor that into our decision
207. 7:52so some people think that
208. 7:53competition-based pricing is always
209. 7:55about setting the setting the same price
210. 7:57as comp as our competition or a lower
211. 7:59price that's not necessarily the case in
212. 8:02some cases we may want to look at
213. 8:04competition and acknowledge that we
214. 8:06think our offering is better we think
215. 8:08that customers uh get more value from
216. 8:11our offering we actually want to set a
217. 8:13price that is reflective of that that's
218. 8:15higher than uh our competition
219. 8:18in any case whether the price is higher
220. 8:20lower or the same competition based
221. 8:22pricing looks at these factors relative
222. 8:26to our competition
223. 8:30so again this was just a very quick
224. 8:32video looking at the major pricing
225. 8:34strategies we talked about customer
226. 8:36value based pricing cost-based pricing
227. 8:39and finally competition based pricing
228. 8:42in a future video we will then dive
229. 8:44deeper into additional pricing
230. 8:46considerations