1. Economic value depends on the alternatives customers have available to satisfy the same need. It also accounts for the fact that the value a company can capture from the market may be limited to what competitors charge. Differentiation value, or the value above and beyond competitors, can be either monetary or psychological.
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2. The 3 main tactical pricing orientations used by most companies involve cost-driven, customer-driven, and B2B pricing.
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False
3. Managers frequently rely on very tactical approaches to pricing, including cost-driven pricing. However, cost-plus pricing deludes managers into believing they can cover fixed costs and achieve desired margins and can lead to overpricing in weak markets and underpricing in strong markets.
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4. Value creation may either be product-led or customer-led. The key to creating good value is first to estimate how much value different combinations of benefits could represent to customers. Value-based companies usually start with the product in mind, designing products and services that drive sales growth at profitable prices.
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5. The purpose of simplified price structures is to illustrate the differences in the potential contribution that can be captured from different customer segments at the best possible price and lowest possible cost.
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6. Compared to needs-based segmentation, a value-based segmentation approach can inform not only pricing, but offering designs for specific market segments. This also allows for the development of effective communication campaigns to reduce customers' willingness to pay.
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False
7. After completing an EVC analysis, a company wishing to gain market share should be advised to set their pricing closer to EVC to maximize profits.
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False
8. A cost-driven approach to pricing establishes a pricing floor, while an EVC analysis establishes a price ceiling for a product.
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9. Choosing appropriate segmentation criteria begins with a descriptive profile of the total market to identify differences in each customer segment. In-depth interviews and information from sales, distributors and industry experts further refine value perception patterns of each segment.
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10. When companies make informed trade-offs between price and volume in order to maximize profits, they are engaged in strategic pricing. By doing so, effective pricers regularly evaluate a careful balance between profitability and marketshare, often with very little variation in pricing and strong focus on customer satisfaction.
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False
11. Total economic value is calculated as the price of the customer's best alternative (the reference value) less the worth of the differentiation value, which may be either positive or negative. This is referred to as the maximum price a customer would pay for a good or service.
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False
12. The technique of conjoint analysis can be used to estimate psychological value drivers such as satisfaction and security. This type of analysis makes it possible to estimate the value of various features in driving the willingness to pay and purchasing decision. Regardless of the attributes tested, the value estimates from the analysis influence a variety of pricing decisions.
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13. Pricing policy refers to the rules or habits that determine how a company varies it prices when faced with factors other than value and cost that threaten its ability to achieve objectives. Good pricing policies helps companies achieve their objectives with minimal impacts to customer, sales or competitor behaviors. Poor pricing policies tend to adversely affect the customer's willingness to pay. Therefore, price setting should be an iterative process and involve cross-functional teams.
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14. A key problem with customer-driven pricing strategy is that many managers tend to misuse pricing to achieve a short-term sales objectives, thereby undermining perceived value and profits.
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False
15. The first step in implementing an EVC analysis is to identify the closest competitive offering and measure how much value it creates.
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False