Core Concepts of Marketing

228 CHAPTER 9 PRICINGTHEPRODUCT

PRICE

I t I

VALUE=PERCEIVEDBENEFITS - PERCEIVED COSTS

FIGURE9 .1 Thecustomer'sviewofprice

Toa certainextent,perc eivedbe nefits are the mirror image of perceivedcosts. For

example,payinga premiumprice-e.g., $650 for apiece of Lalique cry stal-iscompen-

sate dforbyhavingthisex quisiteworkofartdi splayedinone's home.Otherpossiblepe r-

ceivedbe nefits directlyrelatedto theprice-valueequationare status, convenience, thedeal,

brand, quality,choice,and soforth. Manyofthesebenefitstendtooverlap.Forinstance,

a MercedesBenzE 750isa veryhigh-statusbrandnameandpossessessu perb quality. This

makesit worththe$100,000pricetag. Further,if MarkSmithcan negotiatea dealreduc-

in g the priceby$ 15,000,thatwould be hisincentiveto purchase.Likewise,someoneliv-

inginan isolatedmountaincommunityis willingtopaysubstantiallymoreforgroceries

ata localstoreratherthan drive 78 milestothenearest Safeway.Thatperson isalsowill-

ingtosacrificechoicefor greaterconvenience.Increasingthese perceived benefitsis rep-

resented bya recentlycoinedterm-value-added.Thus,providingvalue-addedelements

tothe producthasbecomea popularstrategic alternative.Computer manufacturers nowcom-

pete onvalue-added componentssu chasfreedeliverysetup,training, a24-hourhelp line,

trade-in, andupgrades.

Perceivedcosts includetheactual dollaramount prin ted on theproduct,plus a host

ofadditional factors. Asnoted,theseperceivedcostsare themirror-oppositeofthebene-

fits.Whenfindi ng a gasstationthatis sellingitshighest gradefor 6¢ lesspergallon, t he

customermust consider the16-miledrive to get there,thelongline, thefactth atthemid-

dlegrade is notavailable,andheavy traffic.Therefore, inconvenience,limitedchoice, and

poorservice arepos sibleperceivedcosts.Other commonperceived costs includeriskof

makingamistake,relatedcosts,lost opportunit y, andunexpectedconsequences, toname

but afew. Anew cruisetraveler discovers she reallydoesn ' t enjoyth at venueforseveral

re asons-e.g.,she is givena billforinci dentals whensheleavestheship,shehasusedup

hervacationtimeand money, andshe receivesunwanted materialsfromthis company for

ye arstocome.

In theend,viewing price fromthecu stomer'sperspectiv~pays off in manyways.Most

notably,it helps definevalue-the most important basisforcreatinga competitiveadvantage.

Pricefroma SocietalPerspective

Price, atleastindollarsand cents, hasbeenthe historicalviewofvalue. Derivedfroma

barteringsystem-i.e.,exchanginggoodsof equalvalue-themonetarysystemofeach soci-

etyprovides a moreconvenientwaytopurchasegoods and accumulatewealth. Pricehas

alsobecomea variable societyemploys to control itsec onomiche alth.Pricecanbeinclu-

siveorexcl usive. I n manycountri es , suchasRussia,China, andSouthAfr ica, highprices

forproducts such as food,healthcare,housing, andautomobiles,meansthat mostofthe

populatio n is excludedfrompurchase.Inco ntrast, countries such as Denmark, Germany,

and GreatBritainchargelittle forhealth careand consequentlymakeit availabletoall.

Therearetwodifferentwaystolo okatthe role price playsina society:rationalman

andirrationalman. The formeristhe primaryassumptionunderlying economictheory,and