Price Communication
One of the strategies to influence the consumers’ willingness-to-pay is through the use of price communication. In order for companies to gain their market share they need to ensure that consumers understand the value of the company’s products both economical and psychologically.
In studies conducted by researchers many business managers have noted that the most important capability in their pricing strategies is accurately “communicating value and price”. On the other hand, they also note that it is one of the weakest capabilities for most organizations to perform (Nagle, Hogan & Zale, p. 72). Although communicating price can be difficult at times, given that many people perceive prices differently, careful analysis suggests that by using the four key aspects of proportional price evaluations, reference prices, perceived fairness, and gain-loss framing can help make the pricing strategy process easier and more effective for companies no matter what the economy is doing.
Proportional Price Evaluations
Rather than evaluating price differences in absolute terms, buyers typically evaluate proportionally, which is also known as the Weber-Fechner effect. The Weber-Fechner effect indicates that consumers tend to evaluate price differences relative to the level of the base price. In other words, consumer’s perceptions of price changes depend on a percentage not an absolute difference (Nagle, Hogan & Zale, p. 88).
In this scenario consumers typically see thresholds above and below the products price and then either do not notice or ignore the rest. For example, the textbook author’s noted automobile companies often use this tactic by offering free financing compared to a fixed dollar rebate. Consumers wil...
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...er through effective price communication, especially in today’s poor economy.
Works Cited
Nagle, T. T., Hogan, J. E., & Zale, J. (2010). The strategy and tactics of pricing, a guide to growing more profitably. (5th ed.). Upper Saddle River, NJ: Pearson P T R.
Haws, K. L., & Bearden, W. O. (2006). Dynamic Pricing and Consumer Fairness Perceptions. Journal of Consumer Research, 33(3), 304-311, Retrieved from http://web.ebscohost.com.library3.webster.edu/ehost/pdfviewer/pdfviewer?sid=e97e4379-43ce-49ac-9775-40eb641ade60%40sessionmgr115&vid=9&hid=112
Kahneman, D. (n.d.). Behavioural finance. Retrieved from http://prospect-theory.behaviouralfinance.net/
Khaneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica, 47(2), pp. 263-291, Retrieved from http://www.princeton.edu/~kahneman/docs/Publications/prospect_theory.pdf
Bargaining power of customers looks at the power of the consumer to affect pricing and quality. (Arline,
Firm E also has higher technological capability to reach out to market segment that our firm dominates. It has also been noted that the stock price of Firm E rose $7 to $50, increasing its value and giving the firm an incredible amount of capital to be invested for market capture. It has also been identified that our firm mostly compete against other players in market segments that are more price sensitive than those in others. This generally results in generating low returns when the cost of competition is high. For this particular market segment, however, price-based competition does not necessarily lead to increases in the size of the marketplace. Although, price-based competition is minimized with minimal gross margin for economy products, this competition could be intensified by providing our customers with rebates, preferred financing and long-term warranties. With such immediate capital available at hand, firms such as Firm E can attract our customer at its
A couple of Squares has a limited capacity for which to produce their products and smaller companies tend to have larger fixed costs than bigger companies. Therefore, A Couple of Squares must maximize profits in order to ensure that they will stay in business. A profit-oriented pricing objective is also useful because of A Couple of Squares’ increased sales goals. A Couple of Squares increased their sales goals due to recent financial troubles. Maximizing profits is the easiest way to meet these sales goals due to the fact that A Couple of Squares has limited production capacity. The last key consideration favors a profit-oriented pricing objective because A Couple of Squares offers a specialty product. A specialty product often has limited competition, therefore can be priced on customer value. Pricing at customer value will maximize profits as well as customer satisfaction. A Couple of Squares’ lack of production capacity, increased sales goals, and specialty product favor a profit-oriented pricing
As we learned from Chapter 12, price must be carefully determined and match with firm’s product, distribution, and communication strategies. (Hutt & Speh, 2012, p. 300) Therefore, there should be a strong market perspective in pricing. In order to build an effective pricing policy, marketers should focus on the value a customer places on a product or service. One of the most effective ways to do so is differentiating through value creation.
The upcoming example can illustrate this behavior. For instance, one consumer notices the local market is offering a B...
issues encountered in exercising price leadership to switch industry practice from a complex structure of differential prices and promotions to a simplified, everyday-low-pricing structure.
Commercial firms use Price Elasticity to manage pricing and production decisions, especially in industries where the growth in sales and revenues are the primary measure of a firm’s success. Knowledge of the Price Elasticity for a product or service enables managers to determine the pricing strategy required to get the sales results desired. For example, a firm with a product with a relatively high elasticity would know that a large sales increase can be created with a small price decrease. Conversely, a firm with an inelastic product knows that changes in pricing would have minimal effect on sales.
Purchasing decisions essentially revolve around price. Price is affected through market competition. Therefore, manufacturers control pricing on products as well as the amount of production produced to meet market demands. These decisions are influenced by the type of industry in which these organizations operate. Economists divide the market into four distinct market structures: pure competition, monopoly, oligopoly and monopolistic competition. This paper will differentiate among the various market structures, while identifying pricing and non-pricing strategies within each market structure.
As we know, there are a lot of business types in the world. Each of the businesses has their own strategies to survive in this competitive business world. Economically, price discrimination is usually regarded as desirable, since it often increases the efficiency of an economy. In contrast, it often arouses strong opposition from a public. Like in this particular case, which is online price discrimination, a majority of consumers think that this kind of discrimination is illegal. Generally, discrimination has a very negative implication in our society, and various forms of it, which those based on age, gender, race and religion, are illegal. However, price discrimination is a pricing strategy that is widespread in the economy and to avoid negative
- The pricing strategy is a way to recoup initial investments, competition with other companies, and the factor that volume will bring down production costs. A company may also look at the benefits to earn profits on their goods when looking at their pricing. A good example of this is my teacher Dr. Fishbeck and his IT consulting business. He offers very low rates due to his competition having better benefits with their size and customer
Helgeson, James G., and Eric G. Gorger. "The Price Weapon: Developments In U.S. Predatory Pricing Law." Journal Of Business-To-Business Marketing 10.2 (2003): 3. Business Source Complete. Web. 15 Apr. 2014.
Meanwhile, price strategies are important to be considered by every marketer before market a new product into a new market. Basically, the price is the amount a customer pays for the product. It is determined by a number of factors including market share, competition, material costs, product identity and the customer’s perceived value of the product. The business may increase or decrease the price of product if other stores have the same product.
(Cravens & Piercy, 2006 p 320) Pricing has few important roles in the marketing program of a company. Some of the roles are:
Participative pricing mechanisms, depending on its innovativeness, can be an advantageous promotion tool to catch potential customers? attention. Moreover, it gives seller a unique data regarding consumers? willingness to pay for a specific product or a service (Kim, Natter & Spann, 2009; Spann, Skiera & Schaefers, 2004). These data can be used as a forecast when predicting future sales of a product or a service (Kim, Natter & Spann, 2009).
Price is the amount of money paid by customers to purchase the product. Margin account should be taken into account in the decision as a response to the possibility of a competitor according to quickmba, 2004. The price which is creates sales revenue. For example is the cost. The price of goods is an important factor in the value of sales made. In theory, prices should be determined according to customer demand with the goods sold are affordable. Customers will researching the prices of goods sold because it shows how they appreciate what they are looking for and what they want to pay. The price is not issue to my restaurant. This is because my restaurant offers the price that customer can afford. We are offers a premium and medium price to the customer compare to other restaurant. Besides that, we also offering a high quality in service compare to other. For example, other restaurant they offer the best quality food at the highest prices compare to us we are offer a high quality food and service at the premium and medium