Chapter 4 – Price & Value Communication

1. Chapter 4 – Price & Value Communication • Explain how to develop value-based messages to reflect key product characteristics • Examine how to adapt value-based messages for important purchase characteristics • Show how to communicate price to positively influence customer’s willingness to pay

2. Chapter 4 – Price & Value Communication • The Problem: Customer generally does not know true value unless informed by seller. • Value communication is important when your product or service creates value that is not readily apparent to potential consumers. • Value communication is nothing more than information dissemination. • Develop value proposition (i.e., compellingly unique & distinctive economic or psychological benefits). • Communicate the value proposition, and • Deliver the value.

3. Adapting the Message for Product Characteristics Relative Cost of Search Low “Search” Goods High “Experience” Goods Management Consulting Greater Price Dispersion Commodity Chemicals Investment Advice Home Equity Loans Auto Repairs Hotels Economic Benefits Desktop Computers Life Insurance Type of Benefits SUV’s Antibiotics College Education Blood Pressure Drugs Sports Cars Fitness Equipment Unique work of Art Digital Cameras Psychological Benefits Cosmetics Exotic Vacations Designer Clothes

4. Framework of Value Communication Strategies Relative Cost of Search Low “Search” Goods High “Experience” Goods Strategy 1 Economic Value Communication Communicate Objective Information That Differential Economic Value Justifies Pricing (e.g., Computers) Strategy 2 Economic Value Assurance Communicate Assurances That Differential Economic Value Justifies Pricing (e.g., Investment Returns, Hotel Guarantee) Economic Benefits Type of Benefits Strategy 3 Psychological End-Benefit Framing Associate Differential Performance with Subjective Psychological Value That Justifies Pricing (e.g., Cosmetics) Strategy 4 Psychological End-Benefit Assurance Communicate Assurances That Total Psychological Value Justifies Pricing (e.g., Art, Exotic Vacations, Mattresses?) Psychological Benefits

5. Assignment • Choose a product & identify (15 minutes) • The target customers, the relative size of the market, and their desired economic or psychological benefits. • The Value Proposition for the product; i.e., compellingly unique & distinctive economic or psychological benefits. • How you will communicate the value to customers given high experience characteristics & psychological benefits. For example, what assurances can you offer that the product will deliver the desired psychological benefits? • Price & whether you will negotiate discounts. • Communicate value & price in 2 minutes