For most customers, price by itself is not the key factor when a purchase is being considered. This is because most customers compare the entire marketing offering and do not simply make their purchase decision based solely on a product’s price. Rather, price is one of several variables customers evaluate when they mentally assess a product’s overall value.
As we discussed back in the What is Marketing? Tutorial, value refers to the perception of benefits received for what someone must give up. Since price often reflects an important part of what someone gives up, a customer’s perceived value of a product will be affected by a marketer’s pricing decision. Any easy way to see this is through a value equation:
Value = perceived benefits received
perceived price paid
For the buyer, value of a product will change as perceived price paid and/or perceived benefits received change. However, the price paid in a transaction is not only financial, it can also involve other things that a buyer may be giving up. For example, in addition to paying money a customer may have to spend time learning to use a product, pay to have an old product removed, close down current operations while a product is installed, or incur other expenses.
However, for the purpose of this tutorial we will limit our discussion to how the marketer sets the financial price of a transaction.