Activity-Based Pricing

Examples of Activity-Based Pricing in the following topics:

• Cost-Based Pricing

  • Cost-based pricing is the act of pricing based on what it costs a company to make a product.
  • Cost-based pricing is the act of pricing based on what it costs a company to make a product.
  • Cost-based pricing involves setting a price such that:
  • Activity-based pricing is better than regular cost-based pricing in such situations.
  • Describe cost based pricing as it relates to general pricing strategies

• Competitor-Based Pricing

  • Competition-based pricing describes a situation where a firm has a pricing policy that reflects the pricing decisions of competitors.
  • Competition-based pricing describes the situation where a firm does not have a pricing policy that relates to its product, but reflects the pricing decisions of competitors.
  • The problems with competition-based pricing are that:
  • Competitor-based pricing is purely reactive.
  • Show the basis of competitor-based pricing as a general pricing strategy

• Demand-Based Pricing

  • Demand-based pricing is any pricing method that uses consumer demand - based on perceived value - as the central element.
  • Demand-based pricing, also known as customer-based pricing, is any pricing method that uses consumer demand - based on perceived value - as the central element.
  • These include: price skimming, price discrimination, psychological pricing, bundle pricing, penetration pricing, and value-based pricing.
  • By definition, long term prices based on value-based pricing are always higher or equal to the prices derived from cost-based pricing.
  • Demonstrate the meaning of and the different types of demand-based pricing

• Value-Based Pricing

  • Value-based pricing seeks to set prices primarily on the value perceived by customers rather than on the cost of the product or historical prices.
  • This image shows the process for value based pricing .
  • Many customer-related factors are important in value-based pricing.
  • Value-based pricing focuses entirely on the customer as a determinant of the total price/value package.
  • Examine the rationale behind value based pricing as a pricing tactic

• Psychological Pricing

  • Psychological pricing is a marketing practice based on the theory that certain prices have meaning to many buyers.
  • Inferring quality from price is a common example of the psychological aspect of price.
  • We call prices that end in such digits as 5, 7, 8, and 9 "odd prices. " Examples of odd prices include: $2.95, $15.98, or $299.99 .
  • Psychological pricing is one cause of price points.
  • The psychological pricing theory is based on one or more of the following hypotheses:

• Service Marketing Management and Metrics

  • Traditionally, this has involved implementation planning across the "4 Ps" of marketing: product (or service) management, pricing , place and Promotion.
  • Metrics enable marketing professionals to justify budgets based on returns and to drive organizational growth and innovation.
  • By navigating this metrics continuum, from Activity-Based to Predictive, marketers can move towards more effective marketing measurement and align measurement and metrics with business outcomes.

• Geographic Pricing

  • Geographical pricing is the practice of modifying a basic list price based on the location of the buyer to reflect shipping costs.
  • Geographical pricing is the practice of modifying a basic list price based on the geographical location of the buyer.
  • Uniform delivery pricing (also called postage stamp pricing): The same price is charged to all.
  • Zone pricing, as practiced in the gasoline industry in the United States, is the pricing of gasoline based on a complex and secret weighting of factors, such as the number of competing stations, number of vehicles, average traffic flow, population density, and geographic characteristics.
  • Basing point pricing: Certain cities are designated as basing points.

• Price Discrimination

  • First degree price discrimination based on customer also occurs: it is not accidental that hotel or car rental firms may quote higher prices to their loyalty program's top tier members than to the general public.
  • Although price discrimination is the producer's or seller's legal attempt to charge varying prices for the same product based on consumer demand, price discrimination can be illegal in some cases.
  • Beer companies during the 1960's attempted to price discriminate based on location to price below competitors and run them out of business.
  • Price varies according to demand: larger quantities are available at a lower unit price.
  • Construct the concept of price discrimination relative to legal concerns in pricing

• Other Inputs to Pricing Decisions

  • Factors to consider in pricing include Economic Value added to Customers (EVC), competitor's pricing, and government regulations.
  • Under this strategy, a company sets a price based upon analysis and research compiled from its target market.
  • EVC is based on the insight that a customer will buy a product only if its value to them outweighs the value of the closest alternative.
  • Price controls are governmental restrictions on the prices that can be charged for goods and services in a market.
  • There are two primary forms of price control, a price ceiling, the maximum price that can be charged, and a price floor, the minimum price that can be charged .

• Price Competition

  • With competition pricing, a firm will base what they charge on what other firms are charging.
  • The pricing process normally begins with a decision about the company's pricing approach to the market.
  • In general, a business can price itself to match its competition, price higher, or price lower.
  • Historically, one of the worst outcomes that can result from pricing lower than a competitor is a price war.
  • Another possible drawback when pricing below competition is the company's inability to raise price or image.