Theme 7: At any cost?

Pricing - introduction

Setting the right price is an important part of effective marketing . It is the only part of the marketing mix that generates revenue (product, promotion and place are all about marketing costs).
Price is also the marketing variable that can be changed most quickly, perhaps in response to a competitor price change.
Put simply, price is the amount of money or goods for which a thing is bought or sold.
The price of a product may be seen as a financial expression of the value of that product.
For a consumer, price is the monetary expression of the value to be enjoyed/benefits of purchasing a product, as compared with other available items.
The concept of value can therefore be expressed as:
(perceived) VALUE = (perceived) BENEFITS – (perceived) COSTS
A customer’s motivation to purchase a product comes firstly from a need and a want:e.g.
• Need: "I need to eat
• Want: I would like to go out for a meal tonight")

The second motivation comes from a perception of the value of a product in satisfying that need/want (e.g. "I really fancy a McDonalds").
The perception of the value of a product varies from customer to customer, because perceptions of benefits and costs vary.
Perceived benefits are often largely dependent on personal taste (e.g. spicy versus sweet, or green versus blue). In order to obtain the maximum possible value from the available market, businesses try to ‘segment’ the market – that is to divide up the market into groups of consumers whose preferences are broadly similar – and to adapt their products to attract these customers.
In general, a products perceived value may be increased in one of two ways – either by:
(1) Increasing the benefits that the product will deliver, or,
(2) Reducing the cost.
For consumers, the PRICE of a product is the most obvious indicator of cost - hence the need to get product pricing right.

Audi Case:

Audi uses premium pricing, this aims at using price to maximise the image of quality in a product. Very often it will involve offering a range of cars at different price points. The relationship between price and quality can then be justified in the eyes of the customer by reference to the differences between each level when they can be displayed or demonstrated together using the different models that Audi has to offer with different price points.

I think Audi has a image and quality to maintain, to keep with competitors such as Mercedes Benz and BMW, so going lower in pricing might actually hurt Audi’s profits and sales in the long run, as the perceived value is lowered in the eyes of the customer compared to the competitors products.

Sources:

www.tutor2u.net

Marketing 2nd edition (Hill & O'Sullivan 1999)