Chapter 46 Agenda What should we expect to find when we identify products on the price versus value plane What does it mean to be priced to value Value advantaged Value disadvantaged What are the common pricing practices while launching a new product ID: 202960
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Slide1
Price to Value
Chapter 4-6Slide2
Agenda
What should we expect to find when we identify products on the price versus value plane?
What does it mean to be priced to value? Value advantaged? Value disadvantaged?
What are the common pricing practices while launching a new product?
When launching a new product, which competitors are most likely to be threatened?Slide3
Price Variability in Autos
Large variation of prices for a similar good within the same category
Tata Nano $2500
Bentley
Flying Spur $170,000
What justifies the price difference: BenefitsBenefits based pricing is a direct extension of the economics of pricingSlide4
Price to Benefits MapSlide5
Conjoint Delivers Price to ValueSlide6
Value Equivalence lineSlide7
Zone of Indifference
Around the value equivalence line is a zone of indifference
Small variations in price or benefits around the value equivalence line have non measureable effect on sales volume
Not all products will fall along the value equivalence line
Outside of this zone of indifference, lies the value advantaged zone and the value disadvantaged zone.
Products lying in the value advantaged or disadvantaged zones are either priced significantly lower or higher than the corresponding levels of benefits, as perceived by customers
Elasticity is a key ingredient for determining the width of this zone. Slide8
Value AdvantagedSlide9
At the other end of the spectrum, companies will at times price a product high in comparison to the perceived benefits of that offering.
Missed Opportunities
Some authors refer to this as missed opportunities, as the firm could have sold a higher volume if their prices were more inline with expectation levels
Consider it too a pricing error
Ex: Unsold advertising space within a poplar magazine
Usually results in a loss of market share
Value DisadvantagedSlide10
Customer perceptions
Executive Approach
Identify competing products and their features , benefits, and prices. Position them on the price to value map according to management impressions of the valuation of competing benefits
Delphi Approach
Use
a defined or identified market transaction prices and independent expert evaluations of “benefits
”Consumer Research ApproachMeasure the level of perceived benefits and perceived price for a number of products, as well as the variation in prices in which customers are indifferent to changes.
Plot the products according to the mean perceived price and mean perceive benefits. Use the variation in prices to define ellipses of uncertainty about the mean price and benefits for the products.Slide11
Dispersion in Perceived PriceSlide12
Dispersion in Perceived Benefits
When different customers hold different beliefs regarding the benefits of a product.
Most common error, to include to multiple and disparate market segments as one in making a Price to Benefits map
Poor marketing communication techniques
Arises
naturally when different segments pay attention to promotional activity differently.
the
benefits of the product can only be poorly perceived prior to purchase, if they are ever observed (credence goods)
customers with direct and recent exposure to the product are likely to have a more accurate reading of the benefits than those with less exposure to the productSlide13
Functional benefits physical nature or performance characteristics of the product
Examples: Cars, jewel clarity and size,
Process
benefits
lowering transactional costs
quicker, safer, easier, reduced search costs, etc.Relationship benefits
accrue to the customer from a mutually beneficial relationship with the selleremotional connection to the brand or sales representative, loyalty rewards, information provisions, - lower search costs or design costs.
Benefit Sources Slide14
Market Confusion Simultaneous Dispersion in Perceived Price and Benefits
Perceived Price
Perceived Benefits
Large Dispersion in Perceived
Benefits and Price
Leading to poor purchases, and ultimately brand betrayal or lost opportunities