Blog 6: How much are you willing to pay?

Price is the most difficult to determine out of the Four P’s of marketing. Marketers need to assess and consider many different factors when setting the price for a product. Price has a huge impact on the product. It has to be just right so that consumers will be willing to buy the product and businesses will actually make a profit out of it. The price equation is composed of the list price minus incentives plus allowances plus extra fees.

Consumers use price to indicate the value of a product. Value is the ratio of perceived benefits over price. Every time I am purchasing a product, whether it is a new shampoo, new shirt, or a sandwich for lunch, I consider its value. Most people have prices in their head that they are willing to pay for certain products and when products are priced way higher than these prices, they don’t buy them. For me, as a college student, the prices I am willing to pay for most products are relatively low.

My friends and I love to eat out on the weekends but often try to find places where we can get food for no more than $10-$15. Our favorite place to go is actually a grocery store called Healthy Living where you can make your own wraps and sandwiches. They also have a hot bar with different dinner options. Some people might think their prices are a little high, but the value of the food is what keeps us coming back. They use high quality, fresh ingredients that are very tasty. (Their smoothies and desserts are amazing as well).

What I am explaining with the food at Healthy Living is the judgment that my friends and I as consumers make of the product’s worth relative to other products. We could easily go to Wendy’s or other fast food chains and probably get dinner much cheaper because of their product bundling techniques. Product bundling is grouping similar products together and selling them for a low price. A lot of fast food chains have combo meals where you get a sandwich, drink, and side for a low price. However, what is the sacrifice for the low-cost meal compared to the quality of the food? In this example, I would way rather pay a little bit more to get the food at Healthy Living that is healthy, filling, and satisfying.

As I mentioned, pricing and value is all based on the consumer’s perception of the benefits the product offers in relation to its price. Marketers use a strategy called value pricing where they increase product and service benefits while maintaining or decreasing price. Sometimes this can cause people’s perceptions to change and think that a lower price means lower quality. Personally, I would be fine paying a lower price for my wrap at Healthy Living. I would enjoy it that much more and probably go there more often. When demand changes as a result of a price change it is called elastic demand. In this case, the lowering of prices of wraps would cause an increase in wraps sold, which would increase revenues for Healthy Living. The inverse is inelastic demand, where price changes don’t impact or change the quantity demanded.

The amount people are willing to pay for various products and services vary greatly depending on a person’s income and perception of the value of a product. In my mind, if the prices of my favorite products and services drop, I will rush to buy them and not think twice about the value decreasing.

References:

http://www.mytotalretail.com/article/6-reasons-low-price-costs-long-run/

http://www.orionweb.net/blog/value-based-pricing-is-it-for-your-business/