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Transcript of Price
It creates an impression that the product is expensive due to its exceptional quality and features. Price Premium What is price? the amount of sacrifice a consumer is willing to make to acquire a product or service Relationship between price and value
Premium Pricing Price Premium is the setting of the price artificially high so as to create a favourable perception amongst customers. Paying Premium Prices stimulates an image of higher quality coffee. Only 2% of of the cost of a cup of Starbucks coffee is attributed to coffee ingredients It makes a product highly profitable if there are no competitors and no substitutes to the product. Apple is a successful company that charges its customers higher prices and still does not lose sales. Starbucks is another example that sets high prices and is continuously gaining a larger market share. Competition in the 5’Cs Apple and Starbucks are in a monopolistic competition
As a result they can use premium pricing and still keep a high proportion of their customer base The income effect refers to the change in spending behaviours when income increases or decreases As income increases, customers tend to buy higher-priced products. As income decreases, customers tend to shift to lower-priced alternatives. The substitution effect refers to the customer’s ability to substitute different products for the product in question. The price elasticity of demand is normally higher if there are more substitute products available.
When customers believe that a brand is unique, they believe that their products offer more value, and therefore other brands seem less substitutable. Customers The most important component of the 5 C's is understanding your customers Do you agree that if a luxury brand decreases prices, its demand will also decrease?
Can you think of any examples? Summary Companies use the 5 C’s of pricing to create value for their consumers Premium Pricing is a Pricing strategy used by companies to enhance the image of their product and service How much do you think the most expensive drink at Starbucks is? Premium pricing enhances the image of Starbucks, what other positive effects can it have on Starbucks? Why would consumers choose the iPad over competitors? Can you name any substitutes for the iPod? Questions? ThinkPad vs Apple Seasonal & limited
Rewards card Starbucks Value-based pricing methodFocuses on overall value of the product offering as perceived by consumers