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Setting the Price/Quality/Value Equation

Value of a product or service in the mind of consumer is a function of perceived
quality of the product, perceived positioning of the product, perceived quality and positioning of competing products, and the difference in price of competing
products.
 
i.Differentiate Between Price and Value

Consumers may compare price of a company's product and the competing product and also compare the perceived difference in product quality to decide which products offers a better value to them. In products, where consumer has much alternative choice, the winning companies are striving hard to offer best value to the consumer. In the new products, the companies can charge high price until the consumers have enough choices to derive price-quality equation. For example - in ice-creams, Amul is perceived to be offering better value to consumer as it is perceived to be of better quality and lower price as compared to Walls or Mother Dairy etc. In Mumbai, an ice-cream brand called Naturals is able to charge a higher price and consumers are willing to pay the price. This is because the brand offers ice-creams with flavors of seasonal fruits and there is no competing brand with that positioning.

Offering best value on sustainable basis requires companies to reengineer their processes and build capabilities that can reduce the   cost and increase value for the consumer. Companies resorting to sales and promotion activities are the only means to offer value to the consumer, but may not be able to do it on long-term basis. In USA, a retail chain called Wal-Mart pioneered the concept of Every Day Low Prices (EDLP). Under this approach, the chain sells most of the brands at fairly low price on everyday basis. To offer such a value to consumer, Wal-Mart had to invest heavily in redesigning its logistics management, renegotiate prices with suppliers, and cut down on inventory. In a similar example - in India,Amul has developed a highly efficient milk procurement system wherein Amul provides technical assistance of milk producers and buys milk from them. Thesemilk producers are also the owners of Amul and the profit of Amul is distributed amongst them in form of higher milk prices.

ii. Relation Between Price and Value

Price of a product is determined by its value to the consumer. The phrase "you get what you pay for" is very common, but it's not always true. Sometimes you get much less than what you pay for, sometimes you get more than what you pay for, and sometimes you exactly what you pay for. Relation between price, quality and value can be defined as:

Value = Quality / Price

If the value comes to more than 1 then the product is good, if the value is less than 1 product is not at the satisfactory level, and when the value is equals to 1 the product is satisfactory.

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