{"id":7374,"date":"2016-09-28T19:27:21","date_gmt":"2016-09-28T19:27:21","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/masterybusiness2xngcxmasterspring2016\/?post_type=chapter&p=7374"},"modified":"2019-01-16T23:44:29","modified_gmt":"2019-01-16T23:44:29","slug":"reading-customer-value-and-price","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/wmintrobusiness\/chapter\/reading-customer-value-and-price\/","title":{"raw":"Reading: Customer Value and Price","rendered":"Reading: Customer Value and Price"},"content":{"raw":"[caption id=\"attachment_7763\" align=\"aligncenter\" width=\"600\"]\"Founders<\/a> Founders Jennifer Carter Fleiss (left) and Jennifer Hyman (right) at Rent the Runway headquarters[\/caption]\r\n

Introduction<\/h2>\r\nRent the Runway<\/a>\u00a0is a company that lets customers borrow\u00a0expensive designer dresses for a short time at a low price\u2014to wear on a special occasion, e.g.\u2014and then send them back. A customer can rent a Theia gown that retails for $995 for four days for\u00a0the price of $150. Or, she\u00a0can rent a gown from Laundry by Shelli Segal that retails for $325 for the price of $100. The company\u00a0offers a 20 percent discount to\u00a0first-time buyers and offers a \"free second size\" option to ensure that customers get the right fit.\r\n\r\nDo the customers get a bargain when they are able to wear a designer dress for a special occasion at 15 percent of the retail price? Does the retail price matter to customers in determining value, or are they only considering the style and price they will pay for the rental?\r\n\r\nWhat does value really mean in the pricing equation?\r\n

The\u00a0Customer's View of Price<\/h2>\r\nWhether a customer is\u00a0the ultimate user of the finished product or a business that purchases components of the finished product, the customer seeks to satisfy a need through the purchase of a particular product. The customer uses several criteria to decide\u00a0how much she is\u00a0willing to spend\u00a0in order to satisfy that need. Her preference is\u00a0to pay as little as possible.\r\n\r\n\"Price-Value<\/a>\r\n\r\nIn order to increase value, the business can either increase the perceived benefits or reduce the perceived costs. Both are important aspects of price. If you buy a Louis Vuitton bag for $600, in return for this high price\u00a0you\u00a0perceive that you are getting\u00a0a beautifully designed, well-made bag that will last for decades\u2014in other words, the value is high enough for you that it can offset the cost. On the other hand, when you buy a parking pass to park in a campus lot, you are buying the convenience of a parking place close to your classes. Both of these purchases provide value at some cost. The\u00a0perceived benefits are directly related to the price-value equation; some of the possible\u00a0benefits are status, convenience, the deal, brand, quality, choice, and so forth. Some\u00a0of these benefits tend to go hand in hand. For instance, a Mercedes Benz E750 is a very high-status brand name, and buyers expect\u00a0superb quality to be part of the value equation (which makes it worth the $100,000\u00a0price tag). In other cases, there are tradeoffs between\u00a0benefits. Someone living in an isolated mountain community might prefer to\u00a0pay a lot\u00a0more for groceries at a local store than\u00a0drive\u00a0sixty miles to the nearest Safeway. That person is willing to sacrifice the benefit of choice for the benefit of greater convenience.\r\n\r\nWhen we talk about increasing perceived benefits, we refer to this as increasing the\u00a0\"value added.\" Identifying and increasing the value-added elements of a\u00a0product are an important marketing strategy.\u00a0In our initial example, Rent the Runway is providing dresses for special occasions. The price for the dress is reduced because the customer must give it back, but there are many value-added elements that keep the price relatively high, such as\u00a0the broad selection of current styles and the option\u00a0of trying a second size at no additional cost. In a very competitive marketplace, the value-added elements become\u00a0increasingly important, as marketers use them to differentiate the product from other similar offerings.\r\n\r\nPerceived costs include the actual dollar amount printed on the product, plus a host of additional factors. If you learn that a gas station is selling gas for 25 cents less per gallon than your local station, will you automatically buy from the lower-priced gas station? That depends. You will consider a range\u00a0of other issues. How far do you have to drive to get there? Is it an easy drive or a drive through traffic? Are there long lines that will increase the time it takes to fill your tank? Is the low-cost fuel the grade or brand that you prefer?\u00a0Inconvenience, poor service, and limited choice are all possible perceived costs. Other common perceived costs are the\u00a0risk of making a mistake, related costs, lost opportunity, and unexpected consequences, to name but a few.\r\n\r\nViewing price from the customer's point of view\u00a0pays off in many ways. Most notably, it helps define value\u2013the most important basis for creating a competitive advantage.","rendered":"
\"Founders<\/a><\/p>\n

Founders Jennifer Carter Fleiss (left) and Jennifer Hyman (right) at Rent the Runway headquarters<\/p>\n<\/div>\n

Introduction<\/h2>\n

Rent the Runway<\/a>\u00a0is a company that lets customers borrow\u00a0expensive designer dresses for a short time at a low price\u2014to wear on a special occasion, e.g.\u2014and then send them back. A customer can rent a Theia gown that retails for $995 for four days for\u00a0the price of $150. Or, she\u00a0can rent a gown from Laundry by Shelli Segal that retails for $325 for the price of $100. The company\u00a0offers a 20 percent discount to\u00a0first-time buyers and offers a “free second size” option to ensure that customers get the right fit.<\/p>\n

Do the customers get a bargain when they are able to wear a designer dress for a special occasion at 15 percent of the retail price? Does the retail price matter to customers in determining value, or are they only considering the style and price they will pay for the rental?<\/p>\n

What does value really mean in the pricing equation?<\/p>\n

The\u00a0Customer’s View of Price<\/h2>\n

Whether a customer is\u00a0the ultimate user of the finished product or a business that purchases components of the finished product, the customer seeks to satisfy a need through the purchase of a particular product. The customer uses several criteria to decide\u00a0how much she is\u00a0willing to spend\u00a0in order to satisfy that need. Her preference is\u00a0to pay as little as possible.<\/p>\n

\"Price-Value<\/a><\/p>\n

In order to increase value, the business can either increase the perceived benefits or reduce the perceived costs. Both are important aspects of price. If you buy a Louis Vuitton bag for $600, in return for this high price\u00a0you\u00a0perceive that you are getting\u00a0a beautifully designed, well-made bag that will last for decades\u2014in other words, the value is high enough for you that it can offset the cost. On the other hand, when you buy a parking pass to park in a campus lot, you are buying the convenience of a parking place close to your classes. Both of these purchases provide value at some cost. The\u00a0perceived benefits are directly related to the price-value equation; some of the possible\u00a0benefits are status, convenience, the deal, brand, quality, choice, and so forth. Some\u00a0of these benefits tend to go hand in hand. For instance, a Mercedes Benz E750 is a very high-status brand name, and buyers expect\u00a0superb quality to be part of the value equation (which makes it worth the $100,000\u00a0price tag). In other cases, there are tradeoffs between\u00a0benefits. Someone living in an isolated mountain community might prefer to\u00a0pay a lot\u00a0more for groceries at a local store than\u00a0drive\u00a0sixty miles to the nearest Safeway. That person is willing to sacrifice the benefit of choice for the benefit of greater convenience.<\/p>\n

When we talk about increasing perceived benefits, we refer to this as increasing the\u00a0“value added.” Identifying and increasing the value-added elements of a\u00a0product are an important marketing strategy.\u00a0In our initial example, Rent the Runway is providing dresses for special occasions. The price for the dress is reduced because the customer must give it back, but there are many value-added elements that keep the price relatively high, such as\u00a0the broad selection of current styles and the option\u00a0of trying a second size at no additional cost. In a very competitive marketplace, the value-added elements become\u00a0increasingly important, as marketers use them to differentiate the product from other similar offerings.<\/p>\n

Perceived costs include the actual dollar amount printed on the product, plus a host of additional factors. If you learn that a gas station is selling gas for 25 cents less per gallon than your local station, will you automatically buy from the lower-priced gas station? That depends. You will consider a range\u00a0of other issues. How far do you have to drive to get there? Is it an easy drive or a drive through traffic? Are there long lines that will increase the time it takes to fill your tank? Is the low-cost fuel the grade or brand that you prefer?\u00a0Inconvenience, poor service, and limited choice are all possible perceived costs. Other common perceived costs are the\u00a0risk of making a mistake, related costs, lost opportunity, and unexpected consequences, to name but a few.<\/p>\n

Viewing price from the customer’s point of view\u00a0pays off in many ways. Most notably, it helps define value\u2013the most important basis for creating a competitive advantage.<\/p>\n\n\t\t\t

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Candela Citations<\/h3>\n\t\t\t\t\t
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CC licensed content, Original<\/div>