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Due to an individual perceived value of a product by each market segment and the evaluation of the cost/benefits tradeoffs the marketer should establish the price strategy. The price elasticity of demand should also be examined and is affected by

• the unique value effect: Features/benefits of a product that makes it unique, thereby lowering the price sensitivity of potential customers and raises consumers' willingness to pay higher prices
• the substitute awareness effect: depends on the relation between a customer's price sensitivity and the awareness of the existence of alternatives and lowers willingness to pay higher prices
• Difficult Comparison Effect: a reduced importance of price because products are less able to compare and less substitutable
• total expenditure effect: the buyers gain more to find a seller with the same value but cheaper if there is a large expenditure
• sunk investment effect: the greater the sunk investment, the less is the sensitivity for the price
• price quality effect: the more the quality is assessed by the price, the less is the price sensitivity
• necessity effect: products that are perceived to be a necessity will be less price sensitive

Cost Analysis

One way to base the selling price is to add on the calculated unit costs a percentage of profit...

Another way to base a price and capture an advantage in the market is to use target costing (design-to-cost).That means to identify and target the best market segments and calculate the allowable costs. Due to the required attributes of each segment, the target selling price and profit margin are derived...

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