Value-based pricing : A systematic approach to improve price setting

Edens, M L (2016) Value-based pricing : A systematic approach to improve price setting.

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Abstract:Company X’s Department X is not making a profit. Due to this fact, Company X has started several initiatives to reach ‘break-even’ in 2018. One of these initiatives is to realize a profit increase of 1 million euros by active price management. Currently, the final market price is determined by a list price multiplied by a factor, called a multiplier. This multiplier is only based on country and not on theoretical sources. In this research, the core problem is that it is not clear which variables determine the ‘right’ price setting. The ‘right’ price means the winning price, while maintaining position and current business performance. The main research question is: What are the core variables with the largest impact on the price setting of Company X for product family X and how can these variables be used as a systematic approach for active pricing? First, we investigated the current situation with respect to several aspects of Company X, namely: market position, price elasticity, pricing strategy, pricing method and value position. In this research, we investigated product family X, which consists of Product X.1 and X.2. The market position of this product family is market development. So, they want to enter new markets with existing products. Further, the price elasticity of product family X is hard to determine, because in general Products X.1 and X.2 are Engineered to Order. Moreover, Company X promotes the value-based pricing strategy. This means that they have to take the customer perspective more into account. According to the value positioning strategies of Treacy and Wiersema (1993), the strategy Company X should pursue is the customer intimacy strategy. This means that Company X wants loyal customers and to deliver the best customer solution. The pricing method they have to use, is the method of the Total Economic Value. This method uses a Reference Value and a Differentiation Value. The formula of this method is as follows:
Item Type:Essay (Bachelor)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:01 general works
Programme:Industrial Engineering and Management BSc (56994)
Link to this item:http://purl.utwente.nl/essays/71569
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