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Chapter 2 - Price and Cusotmer's Perception of Value

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43 views23 pages

Chapter 2 - Price and Cusotmer's Perception of Value

Pricing _PSTU

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sabbir ahmed
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Lecture 3:

Price and Customer’s


Perception of Value
Reference Price
• Answers why buyers are more sensitive to price increase than
to decrease
• A reference price may be:
1. External (Displayed in Advertisement or shelf price of another product)
2. Internal (Customer remember from the last purchase)
3. Expected or Belief (what Price should be in existing market)
• People are seldom good information processor and take
shortcut
• Shortcut might lead to error.
Effects of reference price on perceived value
• The context of the purchase decisions (The way sale
offer is advertised will influence perception)
• The availability of more information
• The anchoring effect (The order of presenting price)
• People choose an alternative that associate with past
success
Price and Perceived value
• Buyer’s judgement are influenced by the perceived
differences of actual (offer) and reference price
• How customers make purchase decisions: (A 2 step
process)
First, customer judge value of an offer (actual) price
Then, they decide whether to make the purchase
Hypothetical Value Functions
Answers why buyers are more sensitive to price
increase than to decrease
Arriving at Perceived Value
• The Perceived Benefit of a product = Utility inherent in
 

maximum price a buyer is willing to pay


• The concept of utility is relative.
• Acquisitional Value (AV) = Perceived benefits at maximum price
compared to actual price i.e -
• Transactional Value (TV): Difference between buyer’s reference
price and actual Price i.e -
• Perceived Value = AV + TV
Price Threshold
• Humans have upper and lower limit of responsiveness to a
particular stimuli
• Ex. Our Hearing has both upper and lower limit
• Weber’s Law: A price increase is sufficient to change our purchase
behavior
• Weber Fechner Law discussed behavioral issues of two error
1. Not recognizing the relationship between price and perceived
value
2. Not distinguishing between absolute value and relative price
Absolute Price Threshold
• A buyer has lower and upper price threshold i.e a range of
acceptable price for a purchase
• Below the lower limit, Buyers are suspicious of quality of the
product
• Beyond upper limit, Buyers want to justify the value or
simply refrain for purchasing a product
Ex. Would you eat a plate of Biryani @BDT10 or @BDT1000
Differential Price Threshold
• A buyer has range of alternatives
• Prices of these alternatives provide cues for evaluation
• Numerical differences in prices among alternatives
don’t lead to differences in perceived price
• People are sensitive to price changes to some product,
Brand
• Buyers value unique attributes on product
Concept Of Benefits
• A product or service must promise to:
• Perform identified functions,
• Solve identified problems, or
• Provide specified pleasure.

• Thus, a product or service is bought for what it does,


not what it is made of.
Customer’s Perceptions Are Important!
• The relative benefits customers perceive the product or
service provides;
• The relative total costs of acquiring, installing, and using the
product or service over its lifetime;
• The tradeoff that customers perceive between receiving the
perceived benefits compared to the total costs - perceived
value
The Triad of Benefits
Implication of Benefit Concept
• Identify the benefits that the customer will perceive the product or
services to offer
• Determine the relative importance of those benefits that the
customer place on the product or service
Improving Perceived Value
• Perceived Value can be increased by improving the ability of the
product or services to serve need effectively and provide delight.
• Perceived Value can also be increased by reducing the cost
associated and using the product (Ex. Printer, Car, Heavy
Machinery)
• The most desirable combination is provide more perceived
benefits at less perceived costs.
Improving Perceived Value
• Not enmesh in cost competition. See other ways of improving perceived
benefits even at higher prices.
Determining Customers’ Relative Economic
Value
• Consumer’s Surplus: The difference between the maximum amount customers are willing to
pay for a product and the amount they actually pay.
• This difference is the customer’s gain from making the purchase and is the sum of the money
amounts of value in use minus value in exchange (Consumer’s net gain from the trade)
• Reference Product: Next best alternative to meet the same need as current or proposed new
products
• Concept of Life Cycle Cost: Actual Purchase Price + Start up Cost + all subsequent cost to
the customer of acquiring, installing, maintaining, and using the product over its useful life.
• Post Purchase Cost: All Costs incurred by the customer once the product has been installed or
in use.
• Start Up Cost: Installation, Training, Trial, and Other related cost to make the product fully
operational
Model Of Price-value
Relationship

Perceived
quality

Actual Perceived
Willingness
Price value
to buy

Perceived
monetary
sacrifice
Acquisition-Transaction
Utility
• Acquisition utility • Transaction utility
– The consumer’s – The perceived
perceived economic pleasure or
gain or loss displeasure
associated with the associated with the
purchase financial aspect of
– Function of product the purchase
utility and purchase – Determined by the
price difference between
the internal
reference
price and the
purchase price

Copyright 2007 by Prentice Hall 6 - 42


Perceived Quality
• Perceived Quality of Products
– Intrinsic vs. Extrinsic Cues
• Perceived Quality of Services
• Price/Quality Relationship

Copyright 2007 by Prentice Hall 6 - 43


Price/Quality Relationship
• The perception of price as an indicator
of product quality (e.g., the higher the
price, the higher the perceived quality
of the product.)

Copyright 2007 by Prentice Hall 6 - 47


(continued)
Figure 5-9 (continued)
Perceived Quality of Services
• Difficult due to characteristics of services
– Intangible
– Variable
– Perishable
– Simultaneously Produced and Consumed
• SERVQUAL scale used to measure gap
between customers’ expectation of service
and perceptions of actual service

Copyright 2007 by Prentice Hall 6 - 44

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