![]() This may include evaluation of customer operations and interviews with customer personnel. In many settings, gaining this understanding requires primary research. Value-based pricing is predicated upon an understanding of customer value. How much do you expect to pay for a large pizza? Color TV? DVD? Newspaper?Swimming pool? These expectations create a phenomenon called “sticker shock” as exhibited by gasoline, automobiles, and ATM fees. ![]() Finally, the marketer must assess the customers’ price expectations. Moreover, their knowledge of comparable prices within a product category (e.g., ketchup is typically worse). Have you ever watched the television program,”The Price is Right”? If you have, you know that most consumers have poor price knowledge. How important is price? When is it considered? How is it used? Another factor is the cost of switching. For example, it is critical to understand the consumer buying process. Many customer-related factors are important in value-based pricing. Value-based pricing is most successful when products are sold based on emotions (fashion), in niche markets, in shortages (e.g., drinks at open air festival at a hot summer day) or for indispensable add-ons (e.g., printer cartridges, headsets for cell phones). Goods that are very intensely traded (e.g., oil and other commodities) or that are sold to highly sophisticated customers in large markets (e.g., automotive industry) usually are sold based on cost-based pricing. Value-Based Pricing: Value-based pricing focuses entirely on the customer as a determinant of the total price or value package. Marketers who employ value-based pricing might use the following definition: “It is what you think your product is worth to that customer at that time.” This image shows the process for value based pricing. This strategy focuses entirely on the customer as a determinant of the total price/value package. ![]() Value-based pricing sets prices primarily, but not exclusively, on the value, perceived or estimated, to the customer rather than on the cost of the product or historical prices. ![]() This shows the complete process that a consumer will most likely, whether recognizably or not, go through when they go to buy a product. They are: The problem recognition stage, the search for information, the possibility of alternative options, the choice to purchase the product, and then finally the actual purchase of the product. consumer buying process: There are 5 stages of a consumer buying process.willingness to pay: The willingness to pay (WTP) is the maximum amount a person would be willing to pay, sacrifice, or exchange in order to receive a good or to avoid something undesired, such as pollution.The results of such surveys often depict a customer’s willingness to pay. In many settings, gaining this understanding requires primary research through interviews with customers and various surveys. Value-based pricing is predicated upon an understanding of customer value.Firms are limited by constraints such as government restrictions. Although it would be nice to assume that a business has the freedom to set any price it chooses, this is not always the case.Value -based pricing is most successful when products are sold based on emotions (fashion), in niche markets, in shortages (e.g., drinks at open air festival at a hot summer day), or for indispensable add-ons (e.g., printer cartridges, headsets for cell phones).
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