Pricing Strategy Competition-Based Pricing: sets its prices at or below the

Chapter 1-4 prices of its competitors. Removing the primary focus from
production costs and consumer demand, this pricing strategy
CHAPTER 1: Boundaries of a Good Price centers largely on the competition. Similar price with other
competitors, but adding freebies, features, promo, and other
Price: the amount of money that consumers will be willing to things to catch the attention of the consumers.
pay in exchange for a product; goods or services.
Premium Pricing: charging higher prices than competitors to
Pricing Errors create the impression of a high-end product. Sometimes,
Too High these prices are justified by better features or experiences,
- Lost profit from lack of volume or sales volume. and sometimes the seller wants to make customers believe
- The price is eventually dropped, and the company must fight that the brand name itself is a guarantee of better quality.
for market interest and perception repositioning. (ex. ROLEX WATCHES, GUCCI, LUXURY CARS)
- Potential allegations of price gouging and unfairness, leading
to public relations and regulatory ramifications. CHAPTER 2: Profit’s Sensitivity to Price

Too Low Pricing Sensitivity: the cost of a product affects consumers’

- Forgone the profit to gain volume (not ideal) purchasing decisions.
- Incorrectly set expectations for the product category,
making future price increases driven against a headwind of Price Sensitivity: commonly measured using the price
customer expectations elasticity of demand or the measure of the change in demand
- Letting the consumer think the low price is more important as a function of its price change.
than quality.
The Consumer Decision-Making Process (RID-PS)
Pricing Decisions are Stakeholder Decisions 1. Recognition
- CFO (Chief Financial Officer) - responsible for 2. Information Seeking
managing the company’s financial resources 3. Deliberation (alternatives, aspect to consider)
- Sales and Marketing - focuses on generating revenue 4. Purchase
for the company 5. Subsequent Purchase (good or return)
- Production - responsible for the creation of goods
and services Factors that Affect Pricing Sensitivity (CPUBIS-FEE)
- Research and Development - responsible for seeking - Cost-Sharing
to improve existing products. - Price Quality
- CEO (Chief Executive Officer) - responsible for the - Perceived Substitutes
overall decision of the company. - Unique Value
- Bottom Line Benefit
The Art and Science of Pricing - Brand Perception
Science of Pricing: the act of gathering information, - Inventory
conducting quantitative analysis, and revealing an accurate - Switching Cost
understanding of the range of prices likely to yield positive - Sense of Urgency
results. - Fairness
- Expense
Art of Pricing: the ability to influence consumer price - Ease of Comparison
acceptance, adapt pricing structures to shift the competitive
playing field, and align pricing strategy to the competitive Methods to Measure Pricing Sensitivity (PVG)
strategy, marketing strategy, and industrial policy. 1. Price Ladder Method - asking potential customers
about their intention to buy a specific product at a
Penetration Pricing: attract customers to a new product or particular price, usually ranked on a scale of 1 to 10.
service by offering a lower price during its initial offering. 2. Van Westerndorp Method - surveying people on
Market penetration pricing relies on the strategy of using low their willingness to pay in ranges.
prices initially to make a wide number of customers aware of 3. Gabor-Granger Pricing Technique - research method
a new product, then making it high. (ex. NETFLIX, SPOTIFY,
YOUTUBE)

Price Skimming: starts by charging the highest price that

customers will pay. Over time, the company lowers the price
to reach different types of customers. Initially, the high price Importance: knowing the price sensitivity of your products
targets early adopters willing to pay more for a new product. will help you determine how much value you create by
revealing your customers’ willingness to pay. Without Chapter 4: Psychological Influences on Price Sensitivity
understanding price sensitivity, you cannot know whether
your product development efforts produce increased value. Price Sensitivity: measures how much consumer purchasing
behavior changes when the price of a product changes.
Chapter 3: Customer Perceptions and Value Creation
High price sensitivity means consumers are more responsive
Customer Perception: refers to how customers perceive a to price changes.
brand, product, or service and their perception can
significantly influence their buying decisions. Factors Affecting Price Sensitivity (BANC)
- Brand Loyalty
Effective Perception Management is Vital; - Availability of substitute
1. INFLUENCES Buying Decisions – factors that affect - Necessity of the product
consumer’s choice - Consumer Income
2. Brand Loyalty – consistent quality & satisfaction
3. Competitive Advantage – outperform competitors Psychological Influence: the mental factors that affect how
4. Reputation Management – maintain positive image people react to prices. Understanding these can help
5. Pricing Flexibility – adjust process based on factors businesses set prices that maximize sales and profits.

Customer Perception is how your customers see your brand, Demand Curve: a graph showing the relationship between
products, and services. It is crucial because it directly impacts price and the quantity of a product that consumers are willing
their decision to buy, recommend, and stay loyal. to buy. Typically, as the price decreases, the quantity
demanded increases.
Key Ways to Measure Customer Perception (SSCCN)
1. Surveys & Feedback Forms (mc/open-ended qs) The Relationship Between Price and Quantity Demanded
2. Social Media Listening (track feedbacks on socmed) - price increases, the quantity demanded decreases,
3. Customer Interviews (one-on-one) and vice versa
4. Net Promoter Score (how likely, rate 1-10) - shows how sensitive consumers are to price changes
5. Competitive Analysis (researching)
Types of Demand Curves
Ways to Manage Good Customer Perception Elastic Demand Curve (flatter)
1. Consistent Branding – consistent logo/design - When demand is elastic, a small change in price
2. Quality Products and Services – high quality leads to a large change in the quantity demanded.
3. Customer Feedback – address concerns - Eg. If a store increases the price of chocolate bars by
4. Transparency – honesty & openness 10% and sales drop by 50%, the demand is elastic.
5. Effective Marketing – resonate w/ audience Inelastic Demand Curve (steeper)
6. Online Reputation Management – address negative - When demand is inelastic, changes in price have
comments professionally little impact on the quantity demanded.
7. Employee Training – train (provide excellent service) - Eg. If the price of gasoline increases by 10%, but
8. Community Engagement – support causes people still buy almost the same amount, the
9. Adapt to Changing Trends – meet changing demands demand is inelastic.

Value Creation: a fundamental approach that shapes the Perceived Value: how consumers judge the worth of a
direction of orgs and defines their business purpose product based on what they believe they’re getting for the
price they pay (higher = reduced price sensitivity)
Value Creation Importance
1. Enhance Stakeholders Relations for Sustainable Success – Factors Influencing Price Sensitivity
build long-term relationship with stakeholders 1. Reference Prices and Consumer Expectations
2. Efficiency and Cost Management – practices to optimize 2. Brand Loyalty
the use of resources & control expenses 3. Price Framing (odd numbers)
3. Innovation and Differentiation – to stand out in the market 4. Consumer Attitudes (emotions)
4. Sustainability and Social Responsibility – long term impacts 5. Social Factors (influences)
and societal contributions
5. Measurement and Evaluation – systematic processes used Psychological factors significantly influence consumer
to assess and analyze performance perceptions and behaviors, enabling businesses to develop
6. Financial Performance & Adaptation to Market Dynamics – pricing strategies that align with customer expectations,
eval of financial health & respond to changes in environment leading to increased sales, improved customer satisfaction,
and a stronger competitive position.