Price determines customers’ willingness to pay for a
company’s product/service, and is therefore directly linked to overall profit.
If an item is over or under priced, it can have significant influences in the
overall performance of the company and future business.
I believe price is used as a promotional method, to an
extent. Depending on the industry, advertising a product’s price may be
advantageous. However, it is important for companies to remember that some
consumers may use price as a measure of quality. Hence, when buying a product
that is not frequently purchased, such as a washing machine, customers may look
at lower priced machines as signaling poorer quality (i.e. less efficient, has
a shorter life). On the other hand, products with less differentiated benefits,
such as a bag of chips, may find pricing as an advantageous tool. This is a key
reason why generic brands are purchased at grocery and convenient stores.
Reading this article allowed me to think a lot about the
importance of knowing your customer. As a manger of the Kelley Bstore, I
continued to relate our pricing system with the methods explained. Being
relatively new, the store currently uses a pretty arbitrary pricing system. Our
current system is most similar to cost-plus pricing. We calculate the total
product cost and allocate delivery fees to each product. With cost as our lower
pricing bound, we then think of how much we would be willing to pay for this
item. Although our main customer base (Kelley students) has similar preferences
to the management team, it would be beneficial to send out direct-response
surveys regarding price preferences on specific merchandise. I feel these can
be a great method to increase overall profit and understand customers’ opinions
on our prices.
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