Framework
Five pricing strategies
The question it answers
Before pricing a product, should a business owner anchor on what buyers think it is worth, on cost or on rivals' prices, and for a new product skim or penetrate?
- Origin
- Kotler, Armstrong and Opresnik, 2021
- Diagram type
- Comparison table
- Level of analysis
- Firm
- Topics
- Marketing & sales
Diagram
Five pricing strategies
| Criterion | Customer value-based | Cost-based | Competition-based | Market-skimming | Market-penetration |
|---|---|---|---|---|---|
| Price starts from | Buyers' perceptions of value rather than the seller's cost | The cost of producing, distributing and selling, plus a fair rate of return for effort and risk | Competitors' strategies, costs, prices and market offerings | A high initial price, to skim layers of revenue from the market | A low price for a new product |
| Group in the book | Major pricing strategy (chapter 10) | Major pricing strategy (chapter 10) | Major pricing strategy (chapter 10) | New-product pricing (chapter 11) | New-product pricing (chapter 11) |
| What the book flags | Customer driven: price is set to match the value buyers perceive | Cost-plus pricing ignores demand and competitors' prices | Example: Caterpillar charges premium prices because customers believe its machines give more value over their lifetime | Product quality and image must support the price, and buyers must want the product at that price | Trades a low price for many buyers and a large market share |
When to use it, and when not to
Use it when
The book treats the first three as three angles to weigh together when setting a price: customer-value perceptions, company costs and competitor strategies. The last two apply only to new products.
Sources
References
Listed A–Z by author surname, Harvard style. A source with a DOI links to https://doi.org/…; one without links to its page or says plainly that it has no DOI.
- Kotler, P., Armstrong, G. and Opresnik, M.O. (2021) Principles of marketing, 18th edn, global edn. Harlow: Pearson Education.No DOIpearson.comCited in 1 article