How to Price Effectively: A Guide for Managers and Entrepreneurs by Dholakia Utpal

Author:Dholakia, Utpal [Dholakia, Utpal]
Language: eng
Format: epub
Published: 2017-07-01T16:00:00+00:00

Chapter Summary

In this chapter, we considered the role of the product’s value proposition in making effective pricing decisions. Value propositions answer questions about the benefits customers will receive from the product and the reasons for preferring the company’s product to those of competitors. The process of formulating a value proposition allows the company to understand which of its features are superior and inferior in performance to alternatives, and which ones are shared and contested. The company can then choose the key point(s) of difference, which it considers valued by its target customers and unique, relevant, quantifiable, and sustainable as the core of its value proposition.

The value proposition’s primary role is to calibrate the weights given to the other three pricing decision inputs. While most companies are advised to balance between the decision inputs, individual strategies favor one input over the others. Depending on whether the enterprise embraces cost leadership, premium branding, or comparative framing as its value proposition, costs, customer value and reference prices will be given primacy by the company in its pricing decisions. In the value pricing framework , the value proposition provides the manager with the direction, constraints, and guidelines for pricing decisions. It adds strategic heft to pricing decisions and provides consistency across them. Rather than pricing haphazardly to serve whatever short-term objective is most salient at the moment, pricing decisions are now woven together with a common thread that has the overarching purpose of supporting and delivering the product’s value proposition. Pricing conducted in this manner goes beyond idiosyncratic tactics such as covering costs or matching competitors’ prices, and is synergistic, increasing the company’s pricing effectiveness.

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