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Chapter 6

The document outlines a six-step process for setting prices: 1. Define the reasonable price range based on the product's value and competitive alternatives. 2. Make strategic choices about pricing objectives and capturing value. 3. Assess breakeven sales changes based on how price and volume impact profitability. 4. Gauge price elasticity to understand customer demand responsiveness to price changes. 5. Account for psychological factors like perceived value that can impact price sensitivity. 6. Communicate new prices to the market with a clear rationale, especially for price increases.

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109 views3 pages

Chapter 6

The document outlines a six-step process for setting prices: 1. Define the reasonable price range based on the product's value and competitive alternatives. 2. Make strategic choices about pricing objectives and capturing value. 3. Assess breakeven sales changes based on how price and volume impact profitability. 4. Gauge price elasticity to understand customer demand responsiveness to price changes. 5. Account for psychological factors like perceived value that can impact price sensitivity. 6. Communicate new prices to the market with a clear rationale, especially for price increases.

Uploaded by

Ey Em
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We take content rights seriously. If you suspect this is your content, claim it here.
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lOMoARcPSD|11972573

Price Level

Management (Central Luzon State University)

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lOMoARcPSD|11972573

Price Level
Setting Prices that capture a Share of the Value
Created 3. ASSESS BREAKEVEN SALES CHANGES
Price setting usually comes down to using  relationship between changes in Price,
informed judgment to find a price that balances Volume and Profitability is to be
costs, customer value, strategic goals, and considered in determining where to set
potential competitive responses. price levels
 establishing the breakeven sales change
necessary for a potential price change to
Six-Step Process for Setting Prices
be profitable
 “What percent change in sales would be
1. DEFINE THE REASONABLE PRICE RANGE
 Defining the viable price range starts with necessary for a proposed price change to
defining the highest and lowest price points maintain the same total profit contribution
that a business might sustainably charge for after a price change?” (BREAKEVEN SALES
the product or service. CHANGES)
 The feasible Price Ceiling is defined by the
4. GAUGE PRICE ELASTICITY
product’s value proposition
Price Elasticity
 Feasible Price Floor for a product is the
 shows exactly how responsive customer
price of the next-best competitive demand is for a product based on its price
alternative  is a measure of how reactive the marketplace is
to a change in price for a given product
 Management still needs to make a subjective
PRICE CEILING and the PRICE FLOOR represent
judgment about the applicability of the price
the “reasonable price range”
elasticity measured in the past to estimate the
 negatively differentiated : Price Ceiling is likely effect of a price change
defined by the economic value - below the
price of the next-best competing alternative 5. ACCOUNT FOR PSYCHOLOGICAL FACTORS
 Thoughtful price and value communications
 negatively differentiated: the Price Floor is can often decrease price sensitivity
defined by the product’s variable cost
6. COMMUNICATING NEW PRICES TO THE MARKET
 Communicate the rationale for the change,
especially when there is potentially an issue of
2. MAKE STRATEGIC CHOICES
“fairness.”
 pricing objectives must be set
 define pricing objectives in terms of the How to Communicate Fairness (price increase)
share of differentiating value that the firm
 Send a letter, e mail, or press release to all
attempts to capture in its price customers
 sustainable profitability should be  Avoid being opportunistic by attempting to
considered in setting the price, as low price gain share by compromising on the increase
will, other things being equal, induce  consider non-price mechanisms to “raise”
customers to migrate to a new product or prices and lessen the customer impact
service more quickly

Downloaded by Mariena ([email protected])


lOMoARcPSD|11972573

Downloaded by Mariena ([email protected])

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