Role and Importance of Price

1
Role and Importance of Price

• Key to profitability
• Only mix element not a cost
• Key element in a differentiation strategy
• can increase margin over costs
• component in customer perceived value
• Low prices rarely provide basis for competitive
  advantage

2
Management Considerations

• Assessing price competitiveness
• identify dimensions of value
• weight quality dimensions
• measure competitors along dimensions
• discover price / quality preferences
• Links here to product and positioning
• see Doyles value map
• Consider other influences on purchase
• reputation, sales force, comms, brand

3
Pricing Objectives

• Consider innovation, PLC and portfolio matrix
  issues
• harvest strategy?
• maintain share?
• growth?
• quality leadership?
• have you an innovation lead time?

4
Pricing Strategies

• Penetration Strategy
• price elastic
• few segments
• deter new comp
• image not issue
• quick / responsive
• high scale economies
• customer know. good

• Skimming Strategy
• price inelastic
• multiple segments
• new comp follow
• barriers to entry
• prestige image
• high price
• low cust know
• few scale economies

5
Perceived Value

• Psychological rather than economic analysis
• Need to understand consumer perception and
  attitudes
• which research methods would help in this process?

6
Customer sacrifice

• Broaden our understanding of price
• Several non-financial costs
• Indirect
• delayed delivery, time costs in sorting out
  corrective action
• Psychological
• worry - will he meet his promise?
• (Source Ravald Gronroos (1996))

7
Reducing the sacrifice?

• Reduce price
• in line with positioning
• Add Value
• augmented service (delivery, freephone, internet
  - eg FedEX)
• Think about internal and external service quality
  (Service-Profit Chain )
• Optimal strategy may combine cost leadership and
  differentiation (see Porter)
• (Source Ravald and Gronroos 1996)

8
Creating Value

• Value is bigger than just the product
• tangibles and intangibles
• An important constituent of Relationship
  Marketing...a means of differentiation and a key
  to the riddle of how to find sustainable
  competitive advantage (Gronroos 1997)

9
RM Triangle
FIRM
continual development/ internal marketing
gives promises
CUSTOMER
PERSONNEL
keeps promises

• Note parallels with service profit chain

10
Conclusion

• Managing price is key to profitabilty - the core
  marketing objective
• Understanding price
• shows it is more than financial
• shows it is integrated into value
• shows it can be integral to relationship
  management
• Integration between price, product, distribution
  and communications is key