Chapter 13 notes
Chapter 13. Pricing concepts for establishing value
Price – the overall sacrifice a consumer is willing to make to acquire a specific product or service. This sacrifice necessarily includes the money that must be paid to the seller to acquire the item, but it also may involve other sacrifices, whether nonmonetary, like the value of the time necessary to acquire the product or service, or monetary, like travel costs, taxes, shipping costs, and so forth, all of which the buyer must give up to take possession of the product. Value is the relationship between the product’s benefits and the consumer’s costs. The key to successful pricing is to match the product or service with the consumer’s value perceptions. In this equation, price also provides the information about the quality of products and services. A price set too low may signal low quality, poor performance, or other negative attributes bout the product or service. Consumers don’t necessarily want a low price all the time or for all products. Rather, what they want is high value, which may come with a relatively high or low price, depending on the bundle of benefits the product or service delivers.
Price is the only element of the marketing mix that does not generate costs, but instead generates revenue. Every other element in the marketing mix may be perfect, but with the wrong price, sales and thus revenue will not accrue. Research has also shown that the price is one of the most important factors in the consumers’ price decisions.
*Retailers sometimes use a 100% markup rule, otherwise known as “keystoning.” That is, they simply double what they paid for he item when they price it for the resale. But what if the consumers are not sensitive to price changes for the product or what if the store gets a good deal from the manufacturer? And on the other hand, what if the prices go up, and the consumers are sensitive to price changes of the product?
Price is a particularly powerful indicator of quality when
Price – the overall sacrifice a consumer is willing to make to acquire a specific product or service. This sacrifice necessarily includes the money that must be paid to the seller to acquire the item, but it also may involve other sacrifices, whether nonmonetary, like the value of the time necessary to acquire the product or service, or monetary, like travel costs, taxes, shipping costs, and so forth, all of which the buyer must give up to take possession of the product. Value is the relationship between the product’s benefits and the consumer’s costs. The key to successful pricing is to match the product or service with the consumer’s value perceptions. In this equation, price also provides the information about the quality of products and services. A price set too low may signal low quality, poor performance, or other negative attributes bout the product or service. Consumers don’t necessarily want a low price all the time or for all products. Rather, what they want is high value, which may come with a relatively high or low price, depending on the bundle of benefits the product or service delivers.
Price is the only element of the marketing mix that does not generate costs, but instead generates revenue. Every other element in the marketing mix may be perfect, but with the wrong price, sales and thus revenue will not accrue. Research has also shown that the price is one of the most important factors in the consumers’ price decisions.
*Retailers sometimes use a 100% markup rule, otherwise known as “keystoning.” That is, they simply double what they paid for he item when they price it for the resale. But what if the consumers are not sensitive to price changes for the product or what if the store gets a good deal from the manufacturer? And on the other hand, what if the prices go up, and the consumers are sensitive to price changes of the product?
Price is a particularly powerful indicator of quality when