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Strategic element of marketing mix
 Indication of value or worth of
something
 Without it, transactions could not take
place

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Value Based vs. Cost Based Pricing
Value Based Pricing - difficult to establish
 Cost Based Pricing - easy and often
mistakenly used
 Costs important in determining profit
levels
 Beyond this, cost has little to do with
price

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4
Product quality
Process quality of the
suplier
Technical
capabilites of the
supplier
Delivery timing
Pre-sales services
During sales services
After sales services




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


Trust
Supply flexibilites
Cooperation
Communication
Ease of doing
business
Return polices
Responsiveness
Frequency of
customer visits
Roughly 6 in 10 B2B buyers from industrial
sectors indicate that at least 60% of their
purchase decisions are dominated by
the price of the product,
 In all, price dominates in 55% of
purchases, relatively unchanged from
57% in a similar study conducted in 2011.
 Interestingly, buyers are now conducting
more extensive research for smaller
purchases.

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Suppliers creatively
combine components of
the total offering that
contribute to value for
specific customers.
Components will vary
depending on specific
customer needs and the
customer’s cost
structure.
Exhibit 10-1
Elements of the
Offering:
Product
Service
Image
Availability
Quantity
Evaluated
Price
Value
Activities
Value Value
Enabling Creating
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The customer perceives
price as a cost in its
offering. While some
customers will be able to
directly fund purchases,
others will require
financing assistance (GE
Credit Corporation
finances customer
purchases.) Other
customers may require
JIT delivery while others
may find value in the
brand or image of a
particular supplier,
particularly if that image
can add value to the final
product (Intel Inside).
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Exhibit 10-5
$ Equivalent
Value
Customer view –
Maximum
worth of product
Competitor’s
Price
Acceptable
Price Range
Cost
Maximum
Price per
Unit
Minimum
Price per
Unit
Attributable
cost per unit
Competitor’s
Offering
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Difference between ongoing costs and
ongoing revenue
 Represents portion of revenue that
contributes to:

o Fixed Costs
o Indirect Costs
o Profit
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Exhibit 10-7
Price
Demand
Supply
P1
Elasticity at P1Q1
(Slope of demand
curve)
Q1
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Quantity
10
Demand levels differ at different levels
of price
 Changes in price yield reaction from
customers
 Changes in price yield reaction from
competitors

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Achieving target level of profitability
 Building good-will or relationships (in a
market with certain customers)
 Penetration of a new market or
segment
 Maximizing profit for a new product
 Keeping competitors out of an existing
customer base

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Winning business of new, important
customers
 Penetrating a new account
 Reducing inventory levels
 Keeping business of disgruntled
customers
 Encourage customer trials
 Encourage purchase of complementary
products

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Skimming: Charging relatively high prices
that take advantage of early adopters’
strong desire for the product.
Penetration: Charging relatively low prices
to entice as many buyers as possible into
the early market.
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Skimming
 Perception must reflect high price
 Market is inelastic
 Sustainable market advantage
 Competitive market entry blocked
 Production levels profitable at lower volumes
Penetration
 Market somewhat elastic
 Low price acts as barrier
 Economies of scale are necessary
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Cost
Bid
Profit
Probability of
Expected
Winning Bid
Profit
$20,000
$20,000
$0
.2
$0
$20,000
$22,000
$2,000
.5
$1,000
$20,000
$24,000
$4,000
.7
$2,800
$20,000
$26,000
$6,000
.5
$3,000
$20,000
$28,000
$8,000
.4
$3,200
$20,000
$30,000
$10,000
.3
$3,000
$20,000
$32,000
$12,000
.2
$2,400
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Expected Profit at a Given Price
o ØE(PF) = PW(Pr) x PF(Pr)
Where:
o ØE(PF) = Expected profit
o ØPW(Pr) = Probability of winning the
bid at price Pr
o ØPF(Pr) = Profit at price Pr
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Who has the authority to make final
decisions?
 What are the bargaining styles of
participants in bargain decision?
 Is bargain perceived as transaction,
relationship or both?
 What evaluated price range is the
customer expecting?

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