Understanding Price

Understanding Price and Payment

Buyers weigh their concept of the total price (financial cost; time, risk etc.) against the perceived-values of using the offer.  If the price exceeds the sum of the benefit values, buyers will not buy the offer.

Understanding what price buyers are willing to pay requires knowledge of the actual and perceived value they place on owning/having the product. Price can be a tool that the buyer uses to assist in making judgements about the quality of the offer relative to other offers in the market place.

Buyers differ in the values they assign to different offer features, and marketers often vary their pricing strategies for different price segments. Buyers compare an offer’s price with the prices of competitors’ offers. Price and value also need to be discussed in terms of expectations about cost, quality and of delivery.

Price needs to be understood in terms of the Value Exchange Model

Price/Payment and the Concept of Value

In the past the focus of most marketing exchanges was on what the supplier/provider/seller did to create a marketing exchange.  That there was not have a true market focus – a focus from the customer’s perspective. For many marketers, the focus was on creating the pricing of products, not on understanding the wider elements of customer value and investment.

When we focus on the customer, demonstrates that price is rarely the sole or key factor.  Price is really only what the seller asks.  From the perspective of a buyer, what is important are the broader elements of the Investment or Total Payment.  Payment is in fact a more complex element than price.

Total Payment is a set of factors that creates an investment that a buyer makes.  There is not only the money to be paid (or its equivalent) but also time to be invested (information search, shopping time), indirect costs (for example, transport, parking), acquisition and consumption costs (delivery, credit charges, installation, additional equipment to use the product, disposal of the existing product or the costs involved in changing over to another product or supplier etc.) the risk/uncertainty involved (have I made the right decision?  Will my friends laugh at me? What if it doesn’t work?) and opportunity costs (if I buy this I cannot buy something else – what is the better investment at this time?).

Value is what a buyer believes they will get from a transaction compared to what they have to invest or sacrifice to get it.  If a buyer doesn’t believe they will get receive more than they invest it is not considered value – and the transaction will not occur.  If they receive less than they perceived they were going to get from the exchange, they will certainly reconsider a similar exchange in the future.

The Price (monetary value) is an element in the assessment of value, but it is only part of that assessment.

Not everyone wants the lowest price – but everyone wants the best value!!


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