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Chapter 05

The document discusses strategies for communicating value to influence a customer's willingness to pay. It presents a pricing strategy pyramid and examines the concepts of use value, economic value, and perceived value. Different types of goods require different value communication strategies, whether they are search goods or experience goods, and whether the benefits are more economic or psychological. A framework is provided that matches four value communication strategies to different situations based on the relative search costs and type of benefits. The strategies aim to justify pricing through communicating objective economic value, assuring economic value, framing psychological end benefits, or assuring total psychological value. Prospect theory is also discussed as it relates to how losses and gains are perceived in price communication.

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175 views12 pages

Chapter 05

The document discusses strategies for communicating value to influence a customer's willingness to pay. It presents a pricing strategy pyramid and examines the concepts of use value, economic value, and perceived value. Different types of goods require different value communication strategies, whether they are search goods or experience goods, and whether the benefits are more economic or psychological. A framework is provided that matches four value communication strategies to different situations based on the relative search costs and type of benefits. The strategies aim to justify pricing through communicating objective economic value, assuring economic value, framing psychological end benefits, or assuring total psychological value. Prospect theory is also discussed as it relates to how losses and gains are perceived in price communication.

Uploaded by

marianagarza8
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Chapter 5 Price and Value Communication

Strategies to Influence Willingness to Pay

The Strategy and Tactics of Pricing, 4E Thomas Nagle and John Hogan

The Pricing Strategy Pyramid


Price Level
Price setting

Pricing Policy
Negotiation Tactics & Pricing Setting Procedures

Value Communication
Communication, Value Selling Tools

Price Structure
Metrics, Fences, Controls

Value Creation
Economic Value, Offering Design, Segmentation

The Strategy and Tactics of Pricing

Which Value Is Relevant For Pricing?

Value

Price

Use Value

Economic Value

Perceived Value

Willingness to-pay

The Strategy and Tactics of Pricing

Recognize the Motivations Driving Willingness-to-Pay


Size of expenditure Shared costs Switching costs Size of end-benefits Price-Quality perceptions

The Strategy and Tactics of Pricing

Different Situations Require Different Value Communication Strategies


Relative Cost of Search Low Search Goods Economic Benefits High Experience Goods

Type of Benefits

The Strategy and Tactics of Pricing

Psychological Benefits

Simple Search Goods with Economic Benefits


Relative Cost of Search Low Search Goods Commodity Chemicals High Experience Goods Management Consulting Investment Advice Hotels

Economic Benefits

Home Equity Loans Desktop Computers

Auto Repairs

Type of Benefits

Antibiotics

SUVs Sports Cars

Psychological Benefits

Life Insurance Blood College Pressure Education Drugs Fitness Weight Loss Equipment Plans

Digital Cameras

Cosmetics

Designer Clothes

Exotic Vacations

The Strategy and Tactics of Pricing

Search Goods with Psychological Benefits


Relative Cost of Search Low Search Goods Commodity Chemicals High Experience Goods Management Consulting Investment Advice Hotels

Economic Benefits

Home Equity Loans Desktop Computers

Auto Repairs

Type of Benefits

Antibiotics

SUVs Sports Cars

Psychological Benefits

Life Insurance Blood College Pressure Education Drugs Fitness Weight Loss Equipment Plans

Digital Cameras

Cosmetics

Designer Clothes

Exotic Vacations

The Strategy and Tactics of Pricing

Complex Experience Goods with Economic Benefits


Relative Cost of Search Low Search Goods Commodity Chemicals High Experience Goods Management Consulting Investment Advice Hotels

Economic Benefits

Home Equity Loans Desktop Computers

Auto Repairs

Type of Benefits

Antibiotics

SUVs Sports Cars

Psychological Benefits

Life Insurance Blood College Pressure Education Drugs Fitness Weight Loss Equipment Plans

Digital Cameras

Cosmetics

Designer Clothes

Exotic Vacations

The Strategy and Tactics of Pricing

Complex Experience Goods with Psychological Benefits


Relative Cost of Search Low Search Goods Commodity Chemicals High Experience Goods Management Consulting Investment Advice Hotels

Economic Benefits

Home Equity Loans Desktop Computers

Auto Repairs

Type of Benefits

Antibiotics

SUVs Sports Cars

Psychological Benefits

Life Insurance Blood College Pressure Education Drugs Fitness Weight Loss Equipment Plans

Digital Cameras

Cosmetics

Designer Clothes

Exotic Vacations

The Strategy and Tactics of Pricing

Value Communication and Price Dispersion


Relative Cost of Search Low Search Goods Commodity Chemicals High Experience Goods Management Consulting Investment Advice Hotels

Economic Benefits

Home Equity Loans Desktop Computers

Auto Repairs

Type of Benefits

Antibiotics Psychological Benefits Sports Cars Digital Cameras

SUVs

Life Insurance Blood College Pressure Education Drugs Fitness Weight Loss Equipment Plans

Cosmetics

Designer Clothes

Exotic Vacations

The Strategy and Tactics of Pricing

10

Framework of Value Communication Strategies


Relative Cost of Search Low Search Goods Economic Benefits Strategy 1 Economic Value Communication Communicate Objective Information That Differential Economic Value Justifies Pricing High Experience Goods Strategy 2 Economic Value Assurance Communicate Assurances That Differential Economic Value Justifies Pricing

Type of Benefits

Psychological Benefits

Strategy 3 Psychological End-Benefit Framing


Associate Differential Performance with Subjective Psychological Value That Justifies Pricing

Strategy 4 Psychological End-Benefit Assurance


Communicate Assurances That Total Psychological Value Justifies Pricing
11

The Strategy and Tactics of Pricing

Prospect Theory and Price Communication


+ Value Perceived Gains Value Function

Losses

Gains

Perceived Losses
- Value

The Strategy and Tactics of Pricing

12

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