CHAPTER 2

VALUE
CREATION
 Value Creation
Value creation is the primary aim of any business entity.
Creating value for customers helps sell products and
services, while creating value for shareholders, in the form
of increases in stock price, insures the future availability of
investment capital to fund operations.
The Source of Pricing
Advantage
Strategic pricing harvests the fruits of a
company’s investments in developing and
delivering products and services to market

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 At the foundation of the
Strategic Pricing Pyramid, the
first task of any strategic

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marketing organization is
gaining a deep understanding of
how products and services
creates value for customers.

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The Role of
Value in
Pricing
Value
- Refers to the overall satisfaction that a customer
receives from using a product or service offerings

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In economics it is called “use
value” – the utility gained from the
product.
 Example:
On a hot summer day at the beach, the use value of cold
drink is quite high for most people.

“ Perhaps as high as 10 pesos for a cold soda or a favorite

brand of beer.

Potential customers know that except in rare situations,

they don’t have to pay a seller all that a product is really
worth to them.
Why?
- Because they know that a competing seller will
usually offer a better deal.

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Exchange Value
or Economic
Value
The value at the heart of pricing strategy
 Economic value accounts for the fact that the
value one can capture for a commodity can
attributes of an offer is limited to whatever
competitors charged to them.

￮ Only the part of economic value associated

with differentiation, which we call
“Differentiation Value”

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Economic value estimation begins by determining the price the
next best competitor(s) charge(s). This becomes the reference
value.

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 For example, the reference value of a hotel room on a business trip is the
price charged for the next-best hotel choice in town. In the case of a new
iPhone, the reference value would be the price of the comparable Samsung
or other smartphone under consideration.

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Identifying the next best competitive alternative to your product
and gathering accurate reference prices appears simply, but can
be a challenging task in many cases.

For instance, some products may not have a single competing product that
customers would consider a suitable alternative. Instead, customers might
construct a basket of different products and services as a viable alternative. In
such a case, determining the reference price requires estimating an aggregate
price for a comparable basket of goods.

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Differentiation value refers to the net benefits that your
product or service delivers to customers over and above
those provided by the competitive reference product(s).

Tools for differentiation

 Product/services features
 Personnel
 Channel of distribution
 Image

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Two Forms of
Differentiation Value
1. Monetary Value

2. Psychological Value

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Monetary value represents the total savings or income
increases that a customer accrues as a result of purchasing
the product.

Psychological value refers to the ways that a product

creates innate satisfaction for the customer.

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EXAMPLE

TOYOTA WIGO BYD E6

PHP 598,000 PHP 4.2 M 17
How to Estimate
Economic Value

1. Competitive Reference Prices

2. Estimating Monetary Value

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The most widely used quantitative technique to
estimate the psychological differential value is
conjoint analysis.

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Price Structure

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Tactics for Pricing Differently
Across Segments

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 Market Segmentation

organizing the market into homogeneous groups or

segment that the firm can effectively and
efficiently target.

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Kinds of Market Segmentation

1. Demographic Segmentation
2. Behavioral Segmentation
3. Geographic Segmentation
4. Psychographic Segmentation

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SEGMENTED PRICING

Customer segment pricing - is when different customers pay different prices for
the same product or service

Product form segment pricing - is when different version of the product are
priced differently but not according to differences in cost

Location pricing - is when the product is sold in different geographic areas and
priced differently in those areas, even though the cost is the same

Time Pricing - is different types of price at different time period

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“￮ Reason for Segmented
Pricing

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 BENEFITS OF PRICE SEGMENTATION

1.
• Increases Competitiveness

2.
• Increases Profitability

3.
• Higher Customer Satisfaction

4.
• Higher Rate of Success

5.
• Retention of Customer

6.
• Know Your Customer Better
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Six Steps for
Value Based
Segmentation
 3. Determine
2. Identify operational advantages
1. Determine basic
discriminating value and constraints with
segmentation criteria
drivers regard to those value
customers

4. Create primary 5. Create 6. Develop

and secondary detailed segment metrics and
segment descriptions fences

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Group 1
BARAL, ANN NORMABEL
CARINGAL, CLAIRE TRISHA
DESCALLAR, EDWARD
ILAGAN, RACEL
MANALO, ALEISHAIRA SHERINE M.

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