Chapter 9 - Price & Customer Value Decisions

Question 1

What is proposition quality and perceived quality?

Answer 1

Quality is important for pricing levels, and is the standard of something in comparison to other things of similar kind. We talk about perceived quality since each person has their own definition of it.

Question 2

What is the value of a proposition?

Answer 2

The importance/usefulness of something. The quality in comparison to what we pay. Value = Quality / Price = Quality rating per unit of currency.

Question 3

What parts does the framework for price perception formation consist of?

Answer 3

A cyclical process:

1. Antecedents. Prior beliefs, reference prices, experiences, consciousness and sensitivity. Cultural factors and consumer characteristics.
2. Price Perception. Influenced by reference prices, quality perception, brand awareness, brand loyalty, product familiarity, assymetries of information.
3. Willingness to pay. Influenced by perception of price fairness, price acceptance, magnitude of purchase, frequency of purchase, price presentation, advertising.
4. Purchase behaviour. Influenced by purchase intention, contextual factors, consumer promotions, perceptions of store quality, online vs offline stores.

Question 4

What are three pricing cues customers may use to estimate/assess prices?

Answer 4

1. Sale signs. Indicates the availability of a bargain. Focus on scarcity, may not be available is we don’t purchase now.
2. Odd-number pricing = price ending with 9. Changes our reference price point.
3. Purchase context. Price anchoring = exposed to high price first anchors our reference point at a higher level. Location can also impact price perceptions (pay more in minibar)

Question 5

What are the four most common pricing approaches?

Answer 5

1. The cost-oriented approach
2. The demand-oriented approach
3. The competitor-oriented approach
4. The value-oriented approach

Question 6

What characterises the cost-oriented pricing approach?

Answer 6

Cost is the foundation for our price setting. Mark-up pricing is common in retailing, where a certain markup is added to the cost to get the selling price. Does however not take non-cost factors into account

Question 7

What characterises the demand-oriented pricing approach?

Answer 7

Prices are set according to how much customers will pay. Prevalent in services such as airlines offering different classes, but could be used in B2B and goods. Watch out for overcharging, so customers don’t perceive prices as unfair.

Question 8

What characterises the competitor-oriented pricing approach?

Answer 8

Set prices based on competitors’ prices. Lower = customers more likely to pick you if they are aware. Can lead to price wars and require monitoring and cost control.

Question 9

What characterises the value-oriented pricing approach?

Answer 9

Customers’ considerations in mind; what are buyers’ perceptions of attribute values. Since customers have more resources than they need, they want to obtain value from the offerings they buy. Customer research is used to find out what is of value.

Question 10

What are the four main pricing strategies?

Answer 10

1. Premium pricing. Pricing an offer to indicate its distinctiveness in the marketplace.
2. Penetration pricing. Low price relative to competition to gain marketshare.
3. Economy pricing. Bare minimum prices to attract price sensitive customers
4. Price skimming. Initially high price and then lowered in sequential steps.

Question 11

What are the two pricing strategies that are common for launch pricing?

Answer 11

1. Penetration pricing with hope of generating large volumes of sales.
2. Price skimming to recoup investment from customers who are prepared to pay higher price.

Question 12

When is Price skimming a particularly appropriate approach as a launch strategy?

Answer 12

• companies need to recover their R&D investment quickly
• demand is likely to be price inelastic
• there is an unknown elasticity of demand (safety)
• there are high barriers to entry within the market
• there are few economies of scale or experience
• product life cycles are expected to be short

Question 13

When is penetration pricing an appropriate launch pricing approach?

Answer 13

• strong threat of competition
• the offering is likely to exhibit a high price elasticity of demand in the short term
• low barriers to entry
• product life cycles are expected to be long
• there are economies of scale and experience to take advantage of