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Price to Value

Chapter 4-6

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?

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:


Benefits
Benefits based pricing is a direct
extension of the economics of
pricing

Price to Benefits Map

Conjoint Delivers Price to Value

Value Equivalence line

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.

Value Advantaged

Value Disadvantaged

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

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 Approach


Measure 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.

Dispersion in Perceived Price

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 product

Market Confusion

Perceived Price

Simultaneous Dispersion in Perceived Price and Benefits

Large Dispersion in Perceived


Benefits and Price
Leading to poor purchases, and
ultimately brand betrayal or lost
opportunities
Perceived Benefits

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