Value Based Pricing

An increasing number of companies are basing their prices on the product's perceived value. Value-based pricing uses buyers' perceptions of value, not the seller's cost, as the key to pricing. Value-based pricing means that the marketer cannot design a product and marketing program and then set the price. Price is considered along with the other marketing mix variables before the marketing program is set.


A company using value-based pricing must find out what value buyers assign to different competitive offers. However, measuring perceived value could be difficult. Sometimes, consumers are asked how much they would pay for a basic product and for each benefit added to the offer. Or a company might conduct experiments to test the perceived value of different product offers. If the seller charges more than the buyers' perceived value, the company's sales will suffer. Many companies overprice their products, and their products sell poorly. Other companies under price. Under priced products sell very well, but they produce less revenue than they would have if price were raised to the perceived-value level.

During the past decade, marketers have noted a fundamental shift in consumer attitudes toward price and quality. Many companies have changed their pricing approaches to bring them into line with changing economic conditions and consumer price perceptions. The best way to hold your customers is to constantly figure out how to give them more for less." Thus, more and more, marketers have adopted value pricing strategies - offering just the right combination of quality and good service at a fair price. In many cases, this has involved the introduction of less expensive versions of established, brand-name products. In many business - to - business marketing situations, the pricing challenge is to find ways to maintain the company's pricing power - its power to maintain or even raise prices without losing market share. To retain pricing power - to escape price competition and to justify higher prices and margins - a firm must retain or build the value of its marketing offer. This is especially true for suppliers of commodity products, which are characterized by little differentiation and intense price competition. In such cases, many companies adopt value-added strategies. Rather than cutting prices to match competitors, they attach value-added services to differentiate their offers and thus support higher margins.

Break-even Analysis and Target Profit Pricing

Another cost-oriented pricing approach is break-even pricing(or a variation called target profit pricing). The firm tries to determine the price at which it will break even or make the target profit it is seeking. This pricing method is also used by public utilities, which are constrained to make a fair return on their investment. Target pricing uses the concept of a break-even chart, which shows the total cost and total revenue expected at different sales volume levels. Figure shows a break-even point. Fixed costs are same regardless of sales volume. Variable costs
are added to fixed costs to form total costs, which rise with volume. The total revenue curve starts at zero and rises with each unit sold.


The manufacturer should consider different prices and estimate break-even volumes, probable demand, and profits for each.

Cost Based Pricing Approach

Cost-Based Pricing (Cost-Plus Pricing)

The simplest pricing method is cost-plus pricing—adding a standard markup to the cost of the product. Construction companies, for example, submit job bids by estimating the total project cost and adding a standard markup for profit. Lawyers, accountants, and other professionals typically price by adding a standard markup to their costs. Some sellers tell their customers they will charge cost plus a specified markup; for example, aerospace companies price this way to the government.

To illustrate markup pricing, suppose any manufacturer had the following costs and expected sales:
Then the manufacturer's cost per toaster is given by:

Unit Cost = variable Cost + Fixed Cost
---------------
Price - Variable Cost

The manufacturer's markup price is given by:

Markup Price = Unit Cost
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(1-desired return on sale)

Do using standard markups to set prices make sense? Generally, no. Any pricing method that ignores demand and competitor prices is not likely to lead to the best price. Markup pricing works only if that price actually brings in the expected level of sales. Still, markup pricing remains popular for many reasons. First, sellers are more certain about costs than about demand. By tying the price to cost, sellers simplify pricing—they do not have to make frequent adjustments as demand changes. Second, when all firms in the industry use this pricing method, prices tend to be similar and price competition is thus minimized. Third, many people feel that cost-plus pricing is fairer to both buyers and sellers. Sellers earn a fair return on their investment but do not take advantage of buyers when buyers' demand becomes great.

Respect Your Parents

Parents are the most beautiful gift for us from our creator "Allah". They are most precious in this world. Once they died no one can fulfill their lack. They brought us in this world. They have worked very hard for our nourishment and growth. They sacrifice their likes to meet the necessities of our lives.

Islam teaches us that of the most beloved deeds to Allah, having respect for one's parents is second only to that of prayer. In Islam, respect for parents is so great that the child and his wealth are considered to be the property of the parents: `Aa’ishah, may Allaah be pleased with her, narrated that a man came to the Prophet sallallaahu 'alayhi wa sallam in order to resolve a dispute that he had with his father regarding a loan he had given him. The Prophet sallallaahu 'alayhi wa sallam said to the man: "You and your wealth are to (i.e., the property of) your father."