This is a two part questions. First I will need the discussion question answer which will be below in bold, 300 words APA format. For those response I will need three responses of at least 150 words each.
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.
I think prices should reflect the value consumers are willing to pay. This is called value based pricing. â€œThe goal of value-based pricing is to figure out how much your customers are willing to pay for your product, so that you can maximize your revenue by charging each customer the exact amount they are willing to pay.â€ (Campbell, P. n.d. p. 6). To me and many consumers we can find the same products online at all different prices. Of course I will go for cheap on some products that I know I may only use one time or as a trial to see if I like that product and then I would buy the more expensive product. What really sells me on a product that I will keep on using is the â€œextrasâ€. What this means is what else can I get for the extra money that I am spending for almost the same product that is being sold cheaper elsewhere. The extras to me is great customer service. An example of this is the Disney Cruise line vs the Norwegian Cruise line. They each have comparable boats to sail on, they each go to the same destinations, and they each have good food. The extra value that is added is that Norwegian can not touch Disneyâ€™s cleanliness or their customer service. This is what Disney relies on as a value based service. They know consumers will pay higher prices for great customer service especially if they are going on a vacation.
The same goes for any product. Yes the manufacturing costs can differ from place to place, but consumers will pay extra for added benefits that are not solely physical. Meaning great customer service, or a rebate, and some sort of return policy if that product breaks they can get their money back or replaced by a new one.
Campbell, P. (n.d.). What is Value Based Pricing? Why Value Based Pricing Works Best. Retrieved from https://www.priceintelligently.com/blog/value-base…
Businesses have countless decisions to make when they release a new product. They often use the Four Ps of Marketing as a guideline, to determine how to appeal to their intended audience. The Product itself, the Place it is sold, its Promotional features, and Price are all important factors to consider, and each one can be impacted by variables that the company may or may not be able to control. Out of these four, only price alterations can directly affect revenues though.
Choosing what to initially price a product at is a challenging task. The company may base it on what they predict consumers will pay as a result of current trends or surveys, or they will charge enough to recoup overhead and production costs while earning a profit. Marketers need to consider what the competition is charging for similar products and if they can offer a comparable or better price. The intended market needs to be determined, such as if the product will be for budget sensitive individuals, those shopping out of convenience, or for those who care about an expensive lifestyle. The total cost of ownership (TCO) must also be known, which is what the consumer pays when including shipping, warranties, accessories, etc.
Sellers may also introduce a product at a lower than expected price to generate interest and high-volume sales, or at a higher price to earn as much revenue as fast as possible. Both options can present risks though. Under-pricing can lead to consumers thinking that the product is of poor quality and they will not buy it, and potential profits will be greatly reduced. Over-pricing can have a similar result, with customers feeling as though they are not receiving a fair value for the price they are paying, and are forced towards a competitorâ€™s lower priced item. Apple experienced this when they dropped the price of a new iPhone 33% after only two months, leading to their refunding of a portion of the difference to the customers who paid the higher price at its release.
Finding the best price for a new product is a delicate balance. Overall, a company must primarily focus first on covering the costs of their product and services. If they do not recover those costs, then they will not survive. The price from there, will fluctuate based on customer demand and price sensitivity. As demand increases, so too may the price. Likewise, as more units are sold, production costs may drop, which results in greater revenue with no change to the sale price. The price of simply covering costs is referred to as the floor-price, while the ceiling-price adds in increases to meet the competition and the willingness of customers to pay more for it. Being above or below these thresholds will result in no demand and no profits, which is why it is crucial to always start the pricing process at the breakeven point with production costs.
Kotler, P., & Keller, K. (2016). Marketing Management. Pearson.
Wasserman, E. (2020, January 24). How to Price Your Products. Retrieved from Inc.
I believe prices should reflect the value that consumers are willing to pay for a product or service. When purchasing items, consumers are influenced by several factors including family, peers, and online reviews. Customer service received as well as the ambiance of where the consumer is shopping can be a factor as well. Consumers may not mind spending more if the service they are receiving is better. They may choose to spend less if they know an item may go on sale or be a lower price at a different location. Kotler and Keller (p. 504) when discussing pricing on eBay stated, â€œwhen consumers know similar goods will be available in future auctions, they will bid less un the current auction.â€
An example of this is nail salons. In my town, there are two I frequent. Salon â€˜Aâ€™ is not a professional environment. They rush while doing nails while having loud conversations amongst each other. They constantly text and pick up personal calls while in the middle of working with a client. Salon â€˜Bâ€™ charges twice as much as the first salon, for the same service. The salon looks and has the ambiance of a spa. It is a relaxing setting, with professional staff. At the end of your service, a free neck and shoulder massage is provided. The consumer has the option to pay more for a professional service or spend less and have not receive the spa experience.
Kotler, P., & Keller, K. L. (2016). Marketing Management (15th ed., p. 4-5). Boston, etc.: Pearson.