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Price or value

Q&A: M.P.

How do customers process and evaluate prices? Is it better to sell on price or value? Why?

Customers evaluate the balance between price and value. As long as there is a fair balance or the value exceeds a price the customer is happy and will return for more. If the customer believes they can get a better value from a competitor they likely will switch. Value to a customer can be many things, for example the ego fulfilling experience of a luxury car can make the prestige price (p. 396) appear a good value. Bundling products together with a bundle price (p. 395) can also make the customer feel they're getting a better deal than when they add up the component prices separately. Often there will be features in the bundle the customer does not want and they will either buy the needed components separately, look for a different bundled package, or accept the bundle if unneeded products have a small impact on the bundle price.

Unfortunately, the consultant answer is that it depends if it is better to sell on price or value. Some industries, such as discount retail, notebook computers, and building products, are now competing on price because their product or service is mostly regarded as a commodity. They are pursuing a low price strategy (p.397) in order to attract customers. The challenge with this strategy is that you have to have the best cost structure and will be beaten when the competitors can add value and maintain or beat the low price. The product is usually in the later product lifecycle stages, such as mature or decline (p. 294-297). In general, it is better to provide value to the customer. Value is something that can constantly be changed, added to, and differentiated to remain innovative, respond to the customers' needs, and help generate new products and customer needs.

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Q&A: K. H-D.

How do customers process and evaluate prices? Is it better to sell on price or value? Why?

How customers process and evaluate prices depends on what is personally important to them. How a product is priced depends on what demographic a company wants to hit. As described in chapter 9 in the book a company must decide on what demographic they want to sell too, is it age? Race? Income? Etc. Each of these demographics value different things and each are willing to pay differently for the same type of product.

I think perceived value is what gets most customers to quickly buy on price without looking at the actual value of the purchase. Take microwaves for example, they are always being advertised for $30-$50 and from what I can see in the paper they look good. All they do is warm your food right? So then you go to the store across town to look at the microwave you saw in the paper, upon learning a little more about what you actually want it looks like the real cost of the model you want is going to be $150. I'm already at the store, yes a cheaper microwave has a great price and will heat up my soup, but I know I want quick buttons, stainless finish, and rotating table in the inside once I learn more. The value in a more expensive machine once a person understands that the cheaper machine will do just fine but take 2x longer to heat up your food and it would not be consistently warm you then start to look at what will give you the value that is sought.

Companies always use the price tactic to get customers in the store with a need but they then learn that the cheaper product is actually what they want for the cabin and the one for the home is the more expensive one. However someone is always looking to save a buck and there will always be multiple markets and pricing for the same/like products.

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Q&A: C. G.

How do customers process and evaluate prices? Is it better to sell on price or value? Why?

Customers process and evaluate prices based on what they see as the perceived value of the product. For many customers, a higher price translates to a better quality and longer lasting product. In terms of value, this product provides more value than a less expensive product due to the higher quality. On the other hand, some customers are very price conscious and evaluate certain products on price alone. I think North American consumers as a whole have developed a very "disposable" product mindset since many items we purchase are easier and cheaper to replace than they are to repair or recycle. In this case, many items are looked at strictly on price alone since their long-term usage and/or quality attributes are not really taken into account.

I think that the question of selling on price or value may be the same thing in many cases. Most products should be sold based on their value, but the product's value may be increased by it having a lower price. If the total value of a product is its useful life divided by it's price - a cheaper, lower quality product can provide more value than a much better product if the price is low enough.

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Solution Preview

Q&A: M.P.

How do customers process and evaluate prices? Is it better to sell on price or value? Why?

Customers evaluate the balance between price and value. As long as there is a fair balance or the value exceeds a price the customer is happy and will return for more. If the customer believes they can get a better value from a competitor they likely will switch. Value to a customer can be many things, for example the ego fulfilling experience of a luxury car can make the prestige price (p. 396) appear a good value. Bundling products together with a bundle price (p. 395) can also make the customer feel they're getting a better deal than when they add up the component prices separately. Often there will be features in the bundle the customer does not want and they will either buy the needed components separately, look for a different bundled package, or accept the bundle if unneeded products have a small impact on the bundle price.

Unfortunately, the consultant answer is that it depends if it is better to sell on price or value. Some industries, such as discount retail, notebook computers, and building products, are now competing on price because their product or service is mostly regarded as a commodity. They are pursuing a low price strategy (p.397) in order to attract customers. The challenge with this strategy is that you have to have the best cost structure and will be beaten when the competitors can add value and maintain or beat the low price. The product is usually in the later product lifecycle stages, such as mature or decline (p. 294-297). In general, it is better to provide value to the customer. Value is something that can constantly be changed, added to, and differentiated to remain innovative, respond to the customers' needs, and help generate new products and customer needs.

RESPONSE: I agree with you. I also believe that customers are very ...

Solution Summary

This solution assists in determining whether customers process or evaluate prices.

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