PRICEDEFINED:THREEDIFFERENTPERSPECTIVES 227
underminepricier"ExtraValueMeals," oneofthechain'smostsuccessfulmarketingini-
tiatives.Consumersexpectingcut-ratecomboswon' tgobacktopayingfullprice,espe-
ciallyifotherfast-feedersdiscounttheirpackagedeals.
Sources: GregBUllls, "McDonald's: Now,It's JustAnotherBurgerJoint,"BusinessWeek,March 17, 199 7, pp.3-8; Bill
McDowell, " McDonald's Falls BacktoPrice-CuttingTactics,"Advertising Age,February3, 199 7, pp.5-7;MichaelHirsch,
''ThePriceisRight,"Time ,February 10 , 199 7,p.83;LouiseKramer,"More-NimbleMcDonald's is Getting BackonTrack,"
Advertising Age,January18, 1999,p.6;DavidLeonhardt, " GettingOffTheirMcButts,"BusinessWeek,February22,1999,pp.
84-85;Bruce Horovitz, "Fast-FoodFacilities FaceSalesSlowdown,"USAToday,Wednesday, February 21 , 2001,p.3B.
Introduction
Froma customer'spointofview,valueisthesolejustificationforprice,Manytimescus-
tomerslackanunderstandingofthecostofmateliaisandothercoststhatgointothemak-
ingofa product.Butthosecustomerscanunderstandwhatthatproductdoesforthemin
thewayofprovidingvalue.Itis onthisbasisthatcustomersmakedecisionsaboutthepur-
chaseofa product.
Effectivepricingmeetstheneedsofconsumersandfacilitatestheexchangeprocess.
Itrequiresthatmarketersunderstandthatnotallbuyerswanttopaythesamepriceforprod-
ucts,justastheydonotallwantthesameproduct,the3amedistributionoutlets,orthesame
promotionalmessages.Therefore,inordertoeffectivelypriceproducts,marketsmustdis-
tinguishamongvariousmarketsegments.Thekeytoeffectivepricingisthesameasthe
keytoeffectiveproduct,distribution,andpromotionstrategies.Marketersmustunderstand
buyersandpricetheirproductsaccordingtobuyerneedsifexchangesaretooccur,How-
ever,onecannotoverlookthefactthatthepricemustbesufficienttosupporttheplansof
theorganization,includingsatisfyingstockholders.Pricechargedremainstheprimarysource
ofrevenueformostbusinesses,
PriceDefined:ThreeDifferentPerspectives
Althoughmakingthepricingdecisionis usuallya marketingdecision,makingitcorrectly
requiresanunderstandingofboththecustomerandsociety's viewofpriceaswell.Insome
respects,pricesettingisthemostimportantdecisionmadebya business. Apricesettoo
lowmayresultina deficiencyinrevenuesandthedemiseofthebusiness.Apricesettoo
highmayresultinpoorresponsefromcustomersand,unsurprisingly,thedemiseofthebusi-
ness.Theconsequencesofa poorpricingdecision,therefore, canbedire.Webeginour
discussionofpricingbyconsideringtheperspectiveofthecustomer.
TheCustomer'sViewofPrice
Asdiscussedinanearlierchapter,a customercanbeeithertheultimateuserofthefinished
productorabusinessthatpurchasescomponentsofthefinishedproduct.Itisthecustomer
thatseekstosatisfya needorsetofneedsthroughthepurchaseofa particularproductor
setofproducts.Consequently,thecustomerusesseveralcriteriatodeterminehowmuchthey
arewillingtoexpendinordertosatisfytheseneeds.Ideally,thecustomerwouldliketopay
aslittleaspossibletosatisfytheseneeds.T~isperspectiveis summarizedinFigure9.1.
Therefore,forthebusinesstoincreasevalue(i.e.,createthecompetitiveadvantage),
it caneitherincreasetheperceivedbenefitsorreducetheperceivedcosts,Bothofthese
elementsshouldbeconsideredelementsofprice,
