Firms today are in their perspective industries to maximize consumer satisfaction, increase revenue, and shareholders profits. These tasks require attention to detail when pricing their products. There are always competitors lurking and waiting by the wayside to gain market share and a competitive advantage.
When identifying brands competitors, price elasticity is a major determinant. Demand for a product or service constitutes what the company’s price will be and whether the price will be higher or lower than the competitor’s price.
In terms of the elasticity, price increases may decrease demand and price decreases may increase demand. However, according to Kotler, The introduction or change of any price may initiate a response (favorable or unfavorable) from customers and competitors” (Kotler, P. and Keller, K., 2012)
Ultimately, the concept of price elasticity can identify a brand’s competitors along with marketing research to identify consumer needs, wants, and desires, as well as current industry and competitor’s going- rate pricing.
Kotler, P. and Keller, K. (2012). Marketing Management 14E. Upper Saddle River: Pearson Education, Inc.
How might marketers use conjoint analysis to improve pricing strategies?
When determining pricing strategies marketers must perform research that allows the consumer to voice their opinions in reference to what they need and how important the product or service is to their well-being. One method of doing so is through conjoint analysis. “Kotler defines this method as a means to ask customers to rank their preferences for alternative market offerings or concepts, then they use statistic analysis to estimate the implicit value placed on each attribute” (Kotler, P. and Keller, K., 2012).
Marketers have their work cut out for them when a firm or pricing department requests their assistance to establish a competitive advantage for their product or service. In order for a firm to know and understand what value or benefits the customer expects when utilizing their products and services the use value propositions is of the essence.
According to the strategy and performance coaching company Edborrows,” items that firms need to consider when applying customer value propositions are as follows:
• All Benefits –
• Favorable Points of Differentiation –
• Resonating Focus
• Resonating focus highlights one or two critical differences between the firm’s offerings
• Generic Value Propositions
• Operational Excellence
• Customer Intimacy
• Product/Service Innovation (Barrows, 2010)
Price elasticity of demand is a way to determine marginal revenue. Optimal revenue and, more importantly, optimal profit will occur to the point when marginal revenue = marginal cost, or the price elasticity of demand
The proportion of the total sales of a product secured by one particular company or brand