Value Pricing Takes Dedication
Introduction
Value pricing is a rationale that sets price through the estimation of client perceived value. Value pricing reverses the traditional value proposition of cost-based pricing by recognizing that the client is the ultimate arbitrator of value (Baker, 2009). To better capture value, companies are trying to understand clients’ desired value, affect customers’ perceived value, and gain more bargaining power (Töytäri, Rajala, Alejandro, 2015). Some companies tried value pricing, but they were forced to re-adopt cost-based or competition-based pricing because they lack both experience and knowledge of value pricing. Implementing value pricing involves transformational changes that require inputs from
…show more content…
With traditional pricing, problem arises when the product or service takes longer and cost more than planned. Customers will start to question the integrity of the company they chose, and they may think more about the hours instead of the product or service (Altman, 2015). Customer value is the difference between customer-perceived benefits and price, therefore, higher perceived benefit and/or lower price would encourage customers to choose certain products (Leszinski & Marn, 1997). While cost and competition based pricing fail to recognize the importance of customer perception, value pricing takes customers’ value into consideration.
Barriers of Implementing Value Pricing
Value pricing is gaining attention among businesses. However, academic studies on pricing are not as many as those on other classical pricing strategies. Additionally, an analysis conducted between 1983 and 2006 shows that the average adoption rate of value pricing is only 17% (Hinterhuber, 2008), which means that the cost-based and competition-based pricing still dominating in pricing decisions.
Before diving into the reasons why companies are resisting value pricing, we need to realize that there are two common misconceptions among managers in different companies. First, they believe that pricing is
The company must factor in that each of their customers has lifetime value, a greater value than a small gain made on first sales. With competition in their sector, more penetration pricing would be appropriate. The penetrating pricing strategy would only make sense to retain customers; the pricing strategy must realize lifetime value, (University of Phoenix, 2011).
Designing an appropriate pricing strategy is always a challenging task for most corporations, because price is a determinative factor of operating profits. Meanwhile, price can affect customer perceptions and product development. According to the basic economic theory, pricing policy should reflect the product’s costs and the relationship between supply and demand. In addition to the fundamental framework, price settle mechanism should take into consideration the underlying industry environment. For example, pricing in manufacturing is heavily cost-based with the certainty that the costs are fully covered. And conversely, in some particular sectors, there are downsides when price setting relies solely on the variable costs because of the high fixed cost. Based on this judgment, product providers should carry different pricing mechanism under different market conditions. Accordingly, pricing evolves from a purely academic topic related to the economic theories to a profits-maximising instrument involved with marketing practices. All these issues make the price setting problem more
Your paper discussed the importance of pricing to a company's strategic position in the marketplace. The different considerations in the pricing strategies were also explored. You described good value pricing and the concept of loss leader as one of Wal-Mart's strategies.
When a business can provide a lower cost, then the business can have the ability to lower their price. Providing a better pricing system, along with sharp value products can only increase the chance of growth and customers’ overtime.
In coming up with a pricing strategy, it is important to communicate the prices based on value created for different customers segment as lack of it always results in price sensitivity and intense price negotiations. Since it is not right to assume that every client understands the value of my products, it will be my responsibility to address this through effective pricing and value communication. For instance, as I will create an app for the restaurant, some of my clients may lack the knowledge to use it or may not understand how some features in the app might satisfy the unmet needs. In this case, I will ensure that my clients get to know the existence of the app and how to use it even if it need assistance from some specialized staff. I will also ensure that they get to know the benefits and values the features of the app brings in their dining experience. By knowing the value I offer them, they will be willing to pay for it.
The key to successful pricing is to match the product with the consumer's perception of value.
The setting of ‘fair’ prices to consumers: the company should bear in mind that customers nowadays will shop around to compare the intended products and services. However for the business survival and growth purposes, the company should also maintain its profit margins to ensure its business growth and expansion. The company needs to consider its cost factors and business operation areas to reduce or minimise the costing areas.
Pricing strategy associated with services is typically more complex than the pricing of tangible goods. As a consumer, what pricing issues do you consider when purchasing services? How difficult is it to compare prices among competing services, or to determine the complete price of the service before purchase? What could service providers do to solve these issues?
prices are not justified to the customer in terms of the value of the product
However, due to the rising competition and growing innovative efforts, a pricing strategy may need to be revised at some point to assure customer affordability and maintain customer loyalty. Quality is firmly identified with return. Low quality items and benefit decreases consumer loyalty and prompts to regular returns, while great items and administration can fulfill the client and lessen the quantity of profits. In the meantime, top notch items and administration merit high offering costs in light of the fact that higher costs flag better quality (Li, Xu, & Li,
“Pricing is actually a pretty simple and straight forward thing. Customers will not pay literally a penny more than the true value of the product” (Johnson, R. n.d.). The introductory citation by Canadian Politician Ron Johnson lays the foundation for this case assignment. A case assignment composed of proposals to numerous companies pertaining to their pricing strategy. For products created by their individual organizations. Let’s kickoff this case assignment by exploring possible strategies, for a company that recently developed a new 3D television.
The way companies price their goods and services depends heavily on many different factors. Throughout human history, goods and services have always had intrinsic value to people, and in our day and age this is no different. Shopping, however, has changed quite a bit due to many different reasons. Prices of goods and services are now changed by companies based on psychology, supply and demand, and government influences to adapt themselves to the modern world.
The value pricing is a concept of categorize the prices of different services or products based on the value it provides to its customers. The price determines by the management based on the unique feature that service or product has in it and customers gets charged higher or lower based on those unique features and quality.
Keeping these realities in mind, it is very much obvious that for this market, we choose and follow a value based pricing and do not keep the price of the product too high. It is advisable rather to follow an average pricing and let the consumers build some enthusiasm around the product.
Price, which is one of the most important elements of the marketing mix, can be difficult to get right. Pricing too high, or low, can negatively impact on customer satisfaction and revenue. Adopting a pricing strategy is necessary to achieve desired sales objectives (Chan & Wong 2005).