1.Do you believe that prices should reflect the value that consumers are willing to pay or should prices primarily reflect the cost involved in making a product or service. Defend your answer.
2.Which pricing strategies do you think is the most effective? How would you apply them?
3.How would you handle a price war?
1.Prices should reflect the value the consumers are willing to pay which can be viewed as demand and the cost of input involved in the final product or service. It is the goal for every business to make a profit at the end of every product or service as their gain. In this case, the cost of selling the product or service should exceed the cost of inputs to achieve profits. In my view, prices should primarily reflect the quality value to the consumers. It is the supposed quality which encourages the consumer to offer a first-class price but not the quality guaranteed by the business (Hamzaoui & Linton, 2010). Customers set the price range in their mind to provide in exchange for quality services or products. When a company continually, provide to customers quality products, the firm achieves their loyalty, and this can be a better scope to premium pricing of the products which can also generate more than the cost plus the markup price. Increase in the value of the product is an efficient model to charge a value-based price. There is an assumption the customers that low rates are associated with low quality. Therefore, charging lower prices than competitors’ calls for suspicion about the quality of the product despite the fact that the quality is not degraded. For example, IBM uses premium pricing strategy for their services and products whose prices are motivated by their brand value. In conclusion, I think that Prices should reflect the amount the consumers are willing to pay and the cost of input involved in the final product or service (Steenkamp, Van & Geyskens, 2010).
2.Pricing at a Premium
In premium pricing, the firm sets costs which are higher than the competitors and is based on value branding. This model is applied especially when the product is new in the market associated with selling of unique products. A business can use premium pricing by first creating value perception of the product to the customers. The method and appearance of packaging should attract the customer as well as stock interior decoration to support the premium prices (Steenhuis, Waterlander & De Mul, 2011).
Pricing for Market Penetration
The penetration technique is pricing with an aim to attract new buyers by lowering of prices on goods and services. Companies use this model to swiftly operate with less struggle in competition field. The penetration strategies can be applied by an upcoming business where it offers prices to their products slightly lower than their competitors. Over a time, due to the increase in awareness of the product, profits can be achieved due to demand. in the long run, after getting into the market, the entity may choose to increase the prices based on their cost of inputs.
Pricing for Market Penetration
Economy pricing is a model of product pricing used by a wide range of businesses with the aim of minimizing the production as well as marketing costs thus attracting price-conscious customers. Economy pricing can be applied by discount retailers or food suppliers who have a sales volume by giving discounts on products or maintain low prices to encourage more customers.
Price skimming enables firms to maximize sales on new products in the market. This is achieved by setting high prices on the product in its early phase in the market then lowering the prices gradually as competition sets in the market. Skimming prices can be applied by starting companies which generates development costs and also increases an impression of quality to the consumers (Martínez-de-Albéniz & Talluri, 2011).
3.Ways on fighting price wars can be categorized into non-price responses and price responses.
Revealing strategic purposes and abilities: Strategies to be initiated are such as offering to match the competitor's price or low prices on products as well as showing the cost advantage (Sotgiu & Gielens, 2015).
Quality branding: A company can achieve this by increasing differentiation in products appearance. Adding features to a product which can attract customers purchase as well as create awareness of the existing features along with their benefits. The company should also emphasize the performance perils in low priced selections.
Cooperating with contributors: A company experiencing war on prices should form a strategic partnership by offering commercial and exclusive deals with various retailers, suppliers, brokers or other active providers of related services.
With price responses, the firm is required to use intricate price actions. This can be achieved by offering discounts, promotions of prices, by use of two-part pricing and loyalty programs for the goods. A company can also introduce new products which can be achieved by introducing neighboring varieties that strives in customers sector being defined by competitors. A company should also initiate simple price actions such as adjusting the prices to correspond to that of competitors or a new company in the market (Van Heerde, Gijsbrechts & Pauwels, 2015).
Blank, S. (2013). The four steps to the epiphany: successful strategies for products that win. BookBaby.
Hamzaoui Essoussi, L., & Linton, J. D. (2010). New or recycled products: how much are consumers willing to pay?. Journal of Consumer Marketing, 27(5), 458-468.
Martínez-de-Albéniz, V., & Talluri, K. (2011). Dynamic price competition with fixed capacities. Management Science, 57(6), 1078-1093.
Sotgiu, F., & Gielens, K. (2015). Suppliers Caught in Supermarket Price Wars: Victims or Victors? Insights from a Dutch Price War. Journal of Marketing Research, 52(6), 784-800.
Steenhuis, I. H., Waterlander, W. E., & De Mul, A. (2011). Consumer food choices: the role of price and pricing strategies. Public health nutrition, 14(12), 2220-2226.
Steenkamp, J. B. E., Van Heerde, H. J., & Geyskens, I. (2010). What makes consumers willing to pay a price premium for national brands over private labels?. Journal of Marketing Research, 47(6), 1011-1024.
Van Heerde, H. J., Gijsbrechts, E., & Pauwels, K. (2015). Fanning the flames? How media coverage of a price war affects retailers, consumers, and investors. Journal of Marketing Research, 52(5), 674-693.
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