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