Companies try to make a profit by pricing their products and services at price consumers will...

Companies try to make a profit by pricing their products and services at price consumers will buy. For some companies, they offer lower prices to increase customer value. Rather than take the time to come up with a creative marketing mix that does a better job of meeting the needs of some target market, they just imitate competitors and make the head-to-head competition (and thus price pressure) in the market worse. These are the kind of people who then look at companies like Starbucks and say “How can they get $4.00 for a cup of coffee?” They don’t seem to realize that what Starbucks sells isn’t just the same as what others are selling. Not everyone will pay the higher price, but people who want something “special” will.

Question #1

Does a lower price for products create customer value and lead to success for a company?

Question #2

Why are some consumers willing to pay a premium for certain products?

Expert Solution

1.
Lower price does not necessarily create value for the customer as customer value is created when conformance to quality is delivered that meets the customer expectation. Further, it is the target audience and its purchasing power, method of pricing and the economy of scale in the operations among the other factors. Besides, the practices followed by the company and its value chain also decided the price. These practices should never be compromised for the sake of lowering the prices as it creates negative branding. As a result, the company can fail, rather achieving success.

2.
Some consumers want value that is created not only by the absolute quality of the product and services, but also the value driven process used by the company. For example, Starbucks charges higher price and people pay, because the company:
A.   Follows sustainability practices in the company itself as well as across the value chain
B.   Gives attention to the environment care
C.   Makes vendors and suppliers to produce coffee beans using only ethical and legitimate means ad resources.

Above initiatives towards the environment care and society is understood by the consumers and they are willing to pay more as they feel to make indirect contributions towards making this world a better place.

Rahul Sunny answered 1 year ago

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