Blog Entry 5: Pricing
Class 10
2/24/2014

We've all heard of the 4 P's, Product, Place, Promotion, and Price. The first 3 focus on marketing costs to the firm. But Price is different; price brings money in. Because of this, it's crucial to get pricing right. Without revenue, you have no value as a company. To show us how to get pricing right, HBR lists 5 important components: 

1. Understanding the value-pricing approach
2. Assessing the product's value to customers
3. Assessing price sensitivity
4. Price customization
5. Integrating price with the other marketing-mix elements


Below I have listed Figure A of our text, the Value-Pricing "Thermometer"

It's important to note that the firm essentially creates value when they offer a product that the consumer perceives as more valuable than the company's COGS for that product. Figuring out the value is key. So how do we do that?

One way to determine objective value is through cost-structure studies. Market researchers tend to like to use true economic value (TEV). To determine perceived value, researchers can use a direct-response survey. These are a good start, but sometimes returns overoptimistic results, as people don't actually have to spend their own money in these situations. 

Another important factor in determining price is sensitivity. Products like airplanes and houses have greater price sensitivity than say deodorant or pencils.Competitive factors also play a role in price sensitivity.  For example, today at CVS, I needed extra strength Mucinex-D. The cashier scanned the barcode and much to my dismay popped up with a $27.99 price tag. Immediately I asked for generic, and she said there wasn't a form yet. Had there have been more competition in the Pseudophedrine marketplace, I would have gone with the cheaper price. 
In addition to the price sensitivity, price customization is important as well. Perceived value can change drastically across different consumers. This can be attributed to:

• Taste
• Importance of performance
• Ability to pay
• Intensity of use
• Category knowledge

By understanding these elements, marketers can better decide how to price their product. 

Finally, we must tie price into the other 3 marketing mix elements. The most important measure to consider is consistency. If you are viewed as a premium product, you can charge a premium price, like Mucinex-D. However, if you are viewed as a value item, your pricing should match. 

That's all for today!