Memo on Pricing To Create Shared Values
Number of words: 551
Ideally, the value of a business is realized on its value creation to customers and prioritization margin. Unfortunately, a lot of businesses go for the latter, forgetting that businesses are also built through value creation to their customers. Essentially, value creation is enhanced through pricing. While this is a significant aspect in every business, it can be a considerable challenge if not effectively managed.
Seemingly, pricing is not as easy as most entrepreneurs presume. It necessitates prior planning and consideration of market dynamics along with the objective and perceived values. It is not enough to set prices in relation to competitor pricing. The ideal pricing strategy should target the customers’ perceived value to yield the greatest returns. Unfortunately, a majority of entrepreneurs go for markup pricing since it is easier to implement. With increased market knowledge, customers are more attached to the value preference when purchasing products and services. In the long run, a firm that seeks to gain competitive advantage must align its pricing with the customer’s perceived value of the product. With the power of perception in the market, the strategy earns the firm customer traction and subsequent customer satisfaction in the pricing and value of products and services.
Your article agrees that the shared-value approach is the way to go in as far as pricing is concerned. As depicted in my text, value creation for customers is as important as profit maximization to a firm. In agreement with this, your article adds that today’s “consumers are not passive price takers.” With that, firms have to think through their pricing strategy beyond using the markup and competitor pricing strategies. As addressed in your article, the new enlightenment of consumers in the contemporary market supports the text’s notion that pricing is much more complex.
In relation to the perceived value pricing, your article results in a similar model of a shared-value approach. In one of the five principles of a shared-value model, you mention that successful businesses focus on relationships rather than transactions. I find the principle in support of the perceived value being that a company that establishes a good relationship has a better chance of understanding its customers’ perceived value and implementing it for mutual benefit.
Your article further supports the aspect of setting prices in consideration of the preferred value through the second principle of being proactive (Bertini & Gourville, 2012). With the underlying sensitivity of customers to price changes, a firm must always consider the preferred value before making a decision. In doing so, the firm proactively sets pricing in accordance with the customers’ understanding of the product’s benefits.
Overall, the mention of your evolving strategy disqualifies the use of markup rules and competitive pricing as means that do not guarantee optimum value creation for both buyers and sellers. In this regard, you suggest that a shared-value approach equivalent to perceived value pricing is ideal in capturing value. I find your contribution in support of the text’s main idea that traditional pricing strategies have lost value in contemporary markets. Therefore any firm that seeks to make maximum returns on investments must consider the power of perceived value.
Bertini, M., & Gourville J T., (2012). “Rethinking the way prices are set can expand the pie for everyone.”