PRICE

TO VALUE
What Appeals to the
Consumer?
➢ Consumers don’t purchase products primarily for their
functions.

➢ Function is simply a means to deliver what a customer

really wants: benefit.

➢ A customer buys a product for the perceived benefit he

will gain from it.

➢ Perceived benefit of the product are what create

customer perceived value.
 When making a purchase, a
customer values a product’s
benefit higher than its
function.

Customer Ex. Mobile

software
phone, drill,

perceived
value
Customer perceived value can be determined by the
relationship between perceived benefits and perceived costs:
Value from the customer’s perspective, is the key to pricing.

➢ The importance of pricing in proportion to value is so

strong that, in many markets, the relationship between
value and price is linearly correlated.

➢ Higher-valued products are sold at higher prices;

➢ Lower-valued products are sold at lower prices.

▪ is a strategy of setting prices
primarily based on a consumer's
perceived value of a product or
service;

▪ value pricing is customer-focused,

meaning companies base their
pricing on how much the customer
believes a product is worth;

▪ is not just the underpinning of the

price-setting methods, it is also the
starting point for all refinements to
prices;
▪ is a guiding principle in many
strategic and tactical pricing
actions.

▪ value from customers’

perspectives can act as a guide
to evaluating the profitability
of the action esp. when
launching a new product,
repositioning an existing
product, or tactically
discounting a product to
capture a specific segment.
 ▪ how customers perceive the
value of various
attributes/qualities, features,
and benefits of a product

▪ Price setting with conjoint

analysis is an exercise of
identifying the price that
customers perceive as leaving
them with sufficient value after
the transaction to encourage
their purchase.

Conjoint analysis is a marketing research technique that helps businesses

measure what consumers value most about their products and services
▪ Both these techniques (price setting
and conjoint analysis) encourage firms
to price in proportion to benefits.

▪ Price-to-benefits maps add

to these other price setting
techniques by providing
executives with a strategic
vantage point into the
position of their product
compared to all the
relevant competition.
 Price-to-benefit Map

Bentley Flying Spur is one of the highest

prices on the commercial market, but
also the highest level of benefits that can
be had in a commercially available sedan.

There are several other sedans such as the

Chevrolet Malibu, Lexus LS, and BMW 7
Series. Each of these sedans offers different
levels of benefits in terms of safety,
performance, luxury, and status.

Tata Nano by Tata Motors provides

little more than basic transportation as
having both the fewest benefits and the
lowest price of sedans on the market.
• Apple launched the iPhone in
June 2007, carving out a new
ultrapremium niche.

• Apple quickly dropped the

price by $200 in September

• Apple’s iPod strategy, clearly

puts pressure on many
players in the superpremium
segment esp. Motorola’s Q,
for example, will be
outclassed.

• Customers are likely to

postpone purchases of
cellular telephones until they
can afford the iPhone, - it is
unlikely to have an impact on
the rest of the market
• Plotting price against the
primary benefit over time for
a product line can make shifts
in market strategy clear.

• Apple has stayed ahead in the

MP3-player market since
October 2001 by giving
customers more functionality
and additional storage
capacity at ever lower prices.

• That has made it tough for

competitors like Sony, Dell,
and Creative to gain toeholds.

• Apple also created a full line

of iPod products, making it
tough for rivals to find
uncontested spaces.
Goods that deliver greater benefits can be priced higher,
while goods that deliver fewer benefits can only capture a
lower price.

There are given issues that can give rise to price brackets,
the budget constraints or credibility issues.

Budgetary constraints may force customers to purchase

items below a certain level even if they agree that they
would gain greater benefits if they purchased a higher
priced product.
Products can also suffer from a credibility challenge. Low-
priced products may be perceived as having very little
credible value to warrant any investigation into their
benefits.

High-priced products may be perceived to be unable to

provide sufficient credible benefits to warrant the price,
and hence they are also discarded.

For many purchasing situations, products are evaluated

with respect to a zone of credibility.
 In either case, positioning a
product in the value-advantaged
Products that deliver far more area on the price-to-benefits
benefits than the price extracted map implies that the product
are said to be value advantaged. provides an expected excess value
in comparison to the price.
Value-advantaged products can
be created when firms choose to
price aggressively, thus providing
more benefits than expected at a
given price, or when a product is
enhanced with added features
and benefits but the price is not
changed.
 ▪ Products that are priced high
relative to the benefits they
deliver are value
disadvantaged.

▪ Value-disadvantaged
products can be created
when the firm positions a
product with many features
and benefits at a high price,
but customers perceive little
value from these new
qualities or features.
▪ Value-disadvantaged
positioning can also arise
from changes in the
competitive landscape that
leave a product misaligned in
terms of price and benefits.

▪ A product positioned in the

value-disadvantaged area
typically suffers from lost
market share.
Value-disadvantaged positioning can also arise from changes
in the competitive landscape that leave a product misaligned
in terms of price and benefits.

A product positioned in the value-disadvantaged area

typically suffers from lost market share.

Example:
❖ Porsche 911 GT2 - $194,000
❖ Bentley Silver Spur - $170,000
 If they perceive it to be value
advantaged or value
Because it is customers who disadvantaged, then the product
purchase products, it is often best is likely to capture market
to consider product positions attention or find it waning,
from a customer’s perspective. respectively. Customer
perceptions matter
If customers perceive a product
to be priced to value, then it will
sell in proportion to the number
of customers who are willing to
pay the stated price for that level
of benefits.
 Companies can implement
product positioning by using
Product positioning is the process communication channels,
of determining new products’ pricing, or quality of the
position in the minds of products to stand out and be
consumers. It includes analyzing recognizable.
the market and competitors’
positions, defining the position of
a new product among the
existing ones, and communicating
a particular brand’s product
image.
 Each brand has to know its customers to provide a product that
resonates with their needs. A well-thought-out strategy can
determine the position of this product within the market and
identify its benefits for consumers.

Why is product positioning important?

The process involves creating a particular image of a brand

and its products in consumers’ minds and identifying the key
benefits to show how a particular product differs from
competitors’ alternatives.
❑ Marketers need to determine the best ways to present specific
products and reach their target audience based on:
▪ customers’ needs,
▪ competitive alternatives,
▪ the most effective communication channels, and
▪ tailored messages.

❑ Implementing product positioning strategies enables companies

to create messages that address their customers’ needs and
wants and entice them to purchase.
▪ identifying key benefits of a
product and matching them with
customers’ needs;
Benefits of
product
positioning
▪ finding a competitive advantage
even when the market changes;
▪ meeting customers’
expectations;
▪ reinforcing your brand’s
name and its products;
▪ winning customer loyalty;
▪ creating an effective
promotional strategy;
▪ attracting different
customers;
▪ improving competitive
strength;
▪ launching new products;
▪ presenting new features of
existing products.
1. Characteristics-based
positioning
2. Pricing-based positioning
3. Use or application-based
positioning
4. Quality or prestige-based
positioning
5. Competitor-based
positioning
Brands give certain
characteristics to their products At the same time, another
that aim at creating customer who pays attention to
associations. reliability would prefer Toyota.

It’s done to make consumers

choose based on brand image
and product characteristics.

Example
A person who worries about
safety will probably choose
Volvo because of the brand’s
positioning.
▪ This strategy involves associating
your company with competitive
pricing.

▪ Brands often position themselves

as those that offer products or
services at the lowest price.

Example – Supermarket
• provide customers with
products for lower prices
because of the lower costs they
pay for shipping and
distribution, huge turnover,
and a large procurement of
goods.
Companies can also position
themselves by associating with a
certain use or application.

Example
People who adhere to a healthy
lifestyle create a great demand for
products that help increase
performance in the gym. Hence,
many businesses offer nutritional
supplements. These brands sell
supplements that are high in
calories, vitamins, and minerals.
The brands we are talking about
now don’t concentrate on their
price point; they focus on their
prestige or high quality instead.

Sometimes, it’s the reputation

that makes a brand attract
customers.

Example – Rolex
This famous watch brand is associated
with achievement and excellence in sport
and is popular among powerful and
wealthy people.
▪ The strategy involves using
competitors’ alternatives to
differentiate products and
highlight their advantages.

▪ It helps brands distinguish their

products and show their
uniqueness.
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Nike — high quality
Nike, a famous brand that
designs, develops, and
manufactures running
shoes and sportswear,
positions itself as a
company that provides
athletes with high-quality,
fashionable athletic
sneakers and apparel.
Thrive Market — healthy living
This retail company offers customers healthy food from the best organic brands. They
provide their clients with products at wholesale prices.
 If a new product is launched
within an existing market at a
low price in comparison to the
benefits that it delivers, the firm
is executing a penetration-pricing
strategy.

Penetration pricing is when businesses

introduce a low price for their new product
or service. The initial price undercuts
competitors, forcing them to match the offer
or quickly apply other strategies.
Competitors' customers may switch over to
the cheaper offer, and new customers buy in
too
 Price skimming is a product
pricing strategy by which a firm
charges the highest initial price
that customers will pay and then
lowers it over time.

As the demand of the first customers is

satisfied and competition enters the
market, the firm lowers the price to
attract another, more price-sensitive
segment of the population.

The skimming strategy gets its name from

"skimming" successive layers of cream, or
customer segments, as prices are lowered
over time.