Week 7: Pricing Strategy

This week, we delved more into pricing strategy (with the reading of Chapter 7, the Palmolive-Colgate Case, and a Camtasia review of pricing influences). Several different factors go into pricing--of course, you have to consider the input costs (costs of production of the product), and whether or not you want to use a fixed (such as McDonald's dollar menu) or dynamic price methodology. You will have to consider industry demands, competition, and both external and internal factors (such as luxury status, etc.).

But most importantly, you have to consider the perceived value and benefits from a consumer's vantage. As the text suggests, customers "act on the basis of their perceptions of price and benefits," and their resulting purchases set the demand for a good or service. It's a delicate balance of matching the perception of benefits with what they might consider a "fair" price.  In order to "enhance value," a marketer will have to determine whether a company will add to perceived benefits or reduce the perceived price.

Pricing structure will change with the introduction of competitors, new products, etc. I drive a Mazda 626, for example. The Kelley Blue Book Value of my vehicle has dropped dramatically in the past few years, while the Blue Book Value for my brother's Honda Civic has dropped only slightly. This difference in value perception is in part due to the perceived benefits of the Honda Civic: Good gas mileage, safety, reliability, and sturdier engines. Due to Honda's good track record, they have earned a reputation of building quality, economical, safe, reliable vehicles--thus, their perceived value is higher (and pricing remains stable).

Similarly, Apple is able to price their products at a much higher cost due to their products' perceived value and the perceived benefits to Apple consumers. Therefore, while comparable products exist (the market is now saturated with tablets, for example) Apple is able to price their products at a much higher cost.