| Pricing: Understanding and Capturing Customer Value 295
Chapter 10 | Pricing: Understanding and Capturing Customer Value 295
ing a new grill that churns out paninis in half
The Panera Web site spells out the the time. “This is the time to increase the
says Shaich. “We’re focused on the 90 per-
chain’s valued-added positioning this way: food experience, when the customer least ex-
cent that are still employed.” Although every-
“We are Panera. We are bakers of bread. We pects it,” Shaich insists.
one wants value, he insists, not everyone
are fresh from the oven. We are a symbol of Panera’s strategy of adding value and
wants it in the form of a value meal. Anne
warmth and welcome. We are a simple pleas- charging accordingly has paid off hand-
Skrodzki, a 28-year-old Chicago attorney,
ure, honest and genuine. We are a life story somely, through good economic times and
agrees. She recently spent $9.72 at Panera on
told over dinner. We are a long lunch with an bad. At a time when most chains, including
a chicken Caesar salad and frozen lemonade.
old friend. We are your weekday morning rit- those that are slashing their prices, are strug-
“I think it’s a pretty good value. The portions
ual. We are the kindest gesture of neighbors. gling and closing stores, Panera is flourishing.
are generous. The food is high quality . . . I’ve
We are home. We are family. We are friends.” Over the past five years, its sales have more
also gotten used to coming here for the free
Low prices? Not even on the radar. than tripled, and profits have more than doubled, including six straight quarters of double-digit profit gains through the heart of the recent recession. This year, Panera
Wi-Fi.”
Sources: Kate Rockwood, “Rising Dough: Why Panera Bread Is on a Roll,” Fast Company, October 2009,
plans to add 100 new stores to its current
pp. 69–70; Emily Bryson York, “Panera: An America’s Hottest Brands Case Study,” Advertising Age, November 16,
portfolio of 1,500 cafés.
2009, p. 16; Julie Jargon, “Slicing the Bread But Not the Prices,” Wall Street Journal, August 18, 2009, p. B1;
“Most of the world seems to be focused
Bruce Horovitz, “Panera Bakes a Recipe for Success,” USA Today, July 23, 2009, accessed at www.usatoday.com;
on the Americans who are unemployed,”
and www.panerabread.com, accessed September 2010.
however, the Stag was threatened by cheaper imports from China. Stag responded by dropping prices and scrimping on quality. It was a bad move: For the first time since the 1940s, the brand began losing money.
Finally, however, Stag came to its senses. It abandoned the price war and started innovating. It launched designer umbrellas in funky designs and cool colors. Teenagers and young adults lapped them up. It then launched umbrellas with a built-in high- power flashlight for those who walk unlit roads at night and models with prerecorded tunes for music lovers. For women who walk secluded streets after dark, there’s Stag’s Bodyguard model, armed with glare lights, emergency blinkers, and an alarm. Cus- tomers willingly pay up to a 100 percent premium for the new products. Under the new value-added strategy, the Stag brand has now returned to profitability. Come the mon- soon season in June, the grand old black Stags still reappear on the streets of Mumbai—
Cost-based pricing
but now priced 15 percent higher than the imports. 6
Setting prices based on the costs for producing, distributing, and selling the
The Stag example illustrates once again that customers are motivated not by price but product plus a fair rate of return for effort
by what they get for what they pay. “If consumers thought the best deal was simply a ques- and risk.
tion of money saved, we’d all be shopping in one big discount store,” says one pricing ex- pert. “Customers want value and are willing to pay for it. Savvy marketers price their products accordingly.” 7
Author Costs set the floor for Comment
Cost-Based Pricing
price, but the goal isn’t always to minimize costs. In fact, many
Whereas customer-value perceptions set the price ceiling, costs set the floor for the price that firms invest in higher costs so that they
the company can charge. Cost-based pricing involves setting prices based on the costs for
can claim higher prices and margins (think about Steinway pianos). The key
producing, distributing, and selling the product plus a fair rate of return for its effort and is to manage the spread between costs
risk. A company’s costs may be an important element in its pricing strategy. and prices—how much the company
Some companies, such as Ryanair and Walmart, work to become the “low-cost produc- makes for the customer value it
delivers. ers” in their industries. Companies with lower costs can set lower prices that result in
smaller margins but greater sales and profits. However, other companies—such as Apple, BMW, and Steinway—intentionally pay higher costs so that they can claim higher prices and margins. For example, it costs more to make a “handcrafted” Steinway piano than a Yamaha production model. But the higher costs result in higher quality, justifying that eye- popping $72,000 price. The key is to manage the spread between costs and prices—how much the company makes for the customer value it delivers.
296 Part Three | Designing a Customer-Driven Strategy and Mix
Parts
» | Marketing: Creating and Capturing Customer Value 3
» | Marketing: Creating and Capturing Customer Value 11
» | Marketing: Creating and Capturing Customer Value 13
» | Marketing: Creating and Capturing Customer Value 25
» | Marketing: Creating and Capturing Customer Value 29
» | Company and Marketing Strategy: Partnering to Build Customer Relationships 37
» | Company and Marketing Strategy: Partnering to Build Customer Relationships 41
» | Company and Marketing Strategy: Partnering to Build Customer Relationships 43
» | Company and Marketing Strategy: Partnering to Build Customer Relationships 51
» | Company and Marketing Strategy: Partnering to Build Customer Relationships 55
» | Company and Marketing Strategy: Partnering to Build Customer Relationships 57
» | Company and Marketing Strategy: Partnering to Build Customer Relationships 63
» | Analyzing the Marketing Environment 65
» | Analyzing the Marketing Environment 71
» | Analyzing the Marketing Environment 73
» | Analyzing the Marketing Environment 77
» | Analyzing the Marketing Environment 79
» | Analyzing the Marketing Environment 81
» | Analyzing the Marketing Environment 85
» | Analyzing the Marketing Environment 87
» | Analyzing the Marketing Environment 89
» | Managing Marketing Information to Gain Customer Insights 97
» | Managing Marketing Information to Gain Customer Insights 99
» | Managing Marketing Information to Gain Customer Insights 103
» | Managing Marketing Information to Gain Customer Insights 109
» | Managing Marketing Information to Gain Customer Insights 111
» | Managing Marketing Information to Gain Customer Insights 113
» | Managing Marketing Information to Gain Customer Insights 115
» | Managing Marketing Information to Gain Customer Insights 127
» | Managing Marketing Information to Gain Customer Insights 131
» | Consumer Markets and Consumer Buyer Behavior 133
» | Consumer Markets and Consumer Buyer Behavior 137
» | Consumer Markets and Consumer Buyer Behavior 141
» | Consumer Markets and Consumer Buyer Behavior 143
» | Consumer Markets and Consumer Buyer Behavior 159
» | Consumer Markets and Consumer Buyer Behavior 163
» | Business Markets and Business Buyer Behavior 165
» | Business Markets and Business Buyer Behavior 175
» | Business Markets and Business Buyer Behavior 179
» What is Eaton’s value proposition?
» | Customer-Driven Marketing Strategy: Creating Value for Target Customers 189
» | Customer-Driven Marketing Strategy: Creating Value for Target Customers 193
» | Customer-Driven Marketing Strategy: Creating Value for Target Customers 197
» | Customer-Driven Marketing Strategy: Creating Value for Target Customers 203
» | Customer-Driven Marketing Strategy: Creating Value for Target Customers 205
» | Customer-Driven Marketing Strategy: Creating Value for Target Customers 207
» | Customer-Driven Marketing Strategy: Creating Value for Target Customers 209
» | Customer-Driven Marketing Strategy: Creating Value for Target Customers 211
» | Customer-Driven Marketing Strategy: Creating Value for Target Customers 213
» | Customer-Driven Marketing Strategy: Creating Value for Target Customers 219
» | Products, Services, and Brands: Building Customer Value 223
» | Products, Services, and Brands: Building Customer Value 225
» | Products, Services, and Brands: Building Customer Value 229
» | Products, Services, and Brands: Building Customer Value 237
» | Products, Services, and Brands: Building Customer Value 245
» | Products, Services, and Brands: Building Customer Value 247
» | Products, Services, and Brands: Building Customer Value 249
» | Products, Services, and Brands: Building Customer Value 251
» | Products, Services, and Brands: Building Customer Value 257
» | New Product Development and Product Life-Cycle Strategies 259
» | New Product Development and Product Life-Cycle Strategies 271
» | New Product Development and Product Life-Cycle Strategies 273
» | New Product Development and Product Life-Cycle Strategies 279
» | New Product Development and Product Life-Cycle Strategies 281
» | Pricing: Understanding and Capturing Customer Value 289
» | Pricing: Understanding and Capturing Customer Value 291
» | Pricing: Understanding and Capturing Customer Value 295
» | Pricing: Understanding and Capturing Customer Value 299
» | Pricing: Understanding and Capturing Customer Value 305
» | Pricing: Understanding and Capturing Customer Value 307
» | Marketing Channels: Delivering Customer Value 339
» | Marketing Channels: Delivering Customer Value 347
» | Marketing Channels: Delivering Customer Value 351
» | Marketing Channels: Delivering Customer Value 367
» | Retailing and Wholesaling 373
» | Retailing and Wholesaling 377
» | Retailing and Wholesaling 379
» | Retailing and Wholesaling 393
» | Retailing and Wholesaling 395
» | Retailing and Wholesaling 397
» | Retailing and Wholesaling 401
» | Retailing and Wholesaling 405
» | Communicating Customer Value: Integrated Marketing Communications Strategy 407
» | Communicating Customer Value: Integrated Marketing Communications Strategy 411
» | Communicating Customer Value: Integrated Marketing Communications Strategy 413
» | Communicating Customer Value: Integrated Marketing Communications Strategy 415
» | Communicating Customer Value: Integrated Marketing Communications Strategy 429
» | Communicating Customer Value: Integrated Marketing Communications Strategy 433
» | Advertising and Public Relations 435
» | Advertising and Public Relations 439
» | Advertising and Public Relations 441
» | Advertising and Public Relations 443
» | Advertising and Public Relations 445
» | Advertising and Public Relations 447
» | Advertising and Public Relations 449
» | Advertising and Public Relations 453
» | Personal Selling and Sales Promotion 463
» | Personal Selling and Sales Promotion 469
» | Personal Selling and Sales Promotion 471
» | Personal Selling and Sales Promotion 481
» How is the sales force at Nestlé Waters structured? outsells its top competitors.
» | Direct and Online Marketing: Building Direct Customer Relationships 495
» | Direct and Online Marketing: Building Direct Customer Relationships 499
» | Direct and Online Marketing: Building Direct Customer Relationships 507
» | Direct and Online Marketing: Building Direct Customer Relationships 509
» | Direct and Online Marketing: Building Direct Customer Relationships 515
» | Direct and Online Marketing: Building Direct Customer Relationships 525
» | Creating Competitive Advantage 527
» | Creating Competitive Advantage 529
» | Creating Competitive Advantage 537
» | Creating Competitive Advantage 549
» | The Global Marketplace 551
» | The Global Marketplace 553
» | The Global Marketplace 561
» | The Global Marketplace 573
» | Sustainable Marketing: Social Responsibility and Ethics 581
» | Sustainable Marketing: Social Responsibility and Ethics 583
» | Sustainable Marketing: Social Responsibility and Ethics 587
» | Sustainable Marketing: Social Responsibility and Ethics 595
» | Sustainable Marketing: Social Responsibility and Ethics 603
» | Sustainable Marketing: Social Responsibility and Ethics 605
» | Marketing by the Numbers A21
» | Marketing by the Numbers A27
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