Why pricing is important? What are the pricing issues that concern consumers? What are the pricing issues that concern marketers?
Pricing is the act of allocating value to a commodity. This process defines a tangible amount that determines whether the item is worth the customer’s time and investment. For a business, pricing is a crucial strategy vital to optimizing to increase return on investment in terms of sales and profits. Therefore pricing is essential as it provides the company with a framework for value addition from the customers, which can change numerous business functions. This process offers customers the freedom to choose between different products and services.Pricing is important regardless of whether brand is at the lower end or higher end in the market (Hague)
The pricing issue affecting consumers is the constant comparison of the product’s value to the amount of money they spend on the item. Consumers tend to take a lot of time comparing the pros and cons before making a purchase.
The pricing issue facing markets is the influence that price has on supply and demand. When companies quote high prices compared to their competitors, they experience low demand and surplus supply. Comparably if they set their prices too low, they will have a high demand with minimal supply.
What is your willingness to pay (WTP) for a car repair? What happens to your WTP if you must have your car fixed today or tomorrow for a very important trip at the end of the week? What is your WTP for a rental car in substitution of your own car? What happens to your WTP if the availability of rental cars is very limited these days? Why are your WTPs for each alternative you may have in front of you to still rent a car?
Although many people prefer using their cars, their willingness to pay for repair may be below based on the cost and type of damage done to the vehicle. In urgent times when you need to use your cade today or tomorrow for an important trip, the majority of the people’s willingness will skyrocket compared with no travel, and your car can be repaired at any time. If the rental vehicle is cheap compared to getting your vehicle majority of the people will opt for the substitution; thus, their willingness to pay will decrease as the sense of urgency narrows down. However, if there is uncertainty about getting a rental car, your desire to pay for the repair will be high.
If you graduate from Business School with the intention of setting up a family business, how would you price your services after describing what type of family or partnership business you would set up?
From a young age, I have always had a passion for fashion and design. Thus if I ever open a family business, it would be a clothing retail store. Initially, I would search for valuable and competitive market prices in the clothing industry. To achieve this, I would employ the following approach.
First, I would identify the highest price customers are willing to pay in my locality by observing the high-end luxury stores. At the same time, I would compare the similarity index between our products. Second, I will analyze the price of stores in the broader region and observe their prices. To achieve this, I will examine all my potential competitors, find their average price, and consider the middle point. Lastly, I will assess the current status of my business and calculate my break-even point of pricing. To ensure accuracy, I will find the costs of all my fixed and variable costs.
With all this background knowledge on prices, I would confidently allocate the best price on my products. My pricing will align with the high and medium price points, often considered valuable but also competitive.
Why does the TV show The Price is Right reveal contestants’ preference for unreal prices? What are the psychological factors in pricing that affect the prices chosen by these contestants?
The show The Price is Right showcases the diverse customer preferences in the pricing market by asking contestants to speculate the price of mundane products. More often than not their quoted unrealistically high or low prices.
One of the factors that affect prices determined by contestants is referent pricing. In referent pricing, individuals compare the pricing point to a familiar item stored in the subconscious mind. Through these, the contestants refer to a specific price range to make their estimate. Referent pricing can be a misguided priceing strategy that may lead to overpricing or under pricing (Campbell).
Campbell, Patrick. Complete Guide to Psychological Pricing. 2020. https://www.profitwell.com/recur/all/psychological-pricing. 2021.
Hague, Nick. The Problem with Price. 2021. https://www.b2binternational.com/publications/pricing-research-marketing/. 2021.