Choosing the right price to charge is among the most complex of all marketing decisions. As we note in our Pricing Decisions tutorial, setting price is complicated because marketers must take into consideration both internal factors, which are those primarily controlled by the marketer, and external factors, which are outside their control. For external factors, what competitors charge is the most obvious factor marketers will consider. But another factor that is equally important is the expectation that customers have for what they deem to be a fair price. If customers are not happy with what they are being charged, then a marketer will struggle to be successful, even if their price is lower than their competitors.
As an example of customers questioning what is a fair price, consider the pricing of college textbooks. Historically, what has been somewhat unique about the textbook market is the lack of competition. At most institutions, professors choose the book they want to use and students pay whatever price the school’s bookstore charges for the book. In this situation, there is no competition for the book (i.e., professors generally do not give a choice of different books that students can select), consequently, the price of a single textbook could be well over $100.
However, the high cost of textbooks is being met with increasing resistance from students and some faculty. While students are not the direct target market for textbook companies’ selling efforts (see Type of Selling Roles->Order Influencers), they are becoming major influencers on what faculty will require. This is especially the case when students complain about textbook pricing to faculty or a school’s administration. With students seeing less value in purchasing expensive textbooks, their overall spending on course materials has been dropping for several years, even though the price of textbooks has risen.
As discussed, in this story from the Ohio State University student paper, The Lantern, students concern about the value of textbooks has forced publishers to rethink their product options. In particular, they have moved to offering more short-term textbook rentals as well as digital versions. While most students reading this post are well aware of these options, from a marketing perspective it is important to understand how marketers need to address changes in customers’ perception of product value. In some situations, it may simply mean the marketer will need to lower their price. But in other situations, such as the textbook market, customer perception of value is forcing textbook publishers to adjust their product mix.
What is happening in the textbook market also should serve as a good example of why it is crucial for organizations to continually monitor their target market to see if the perceived value of their product offerings is changing.
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