Consumers Characteristic

Some consumers have high search cost. Some consumers do not exactly know which firms sells the
product they wanted.

SEARCH COST is the time energy and money that buyers and sellers expend in trying to find one another
in order to engage in transactions.

Old days – hard to find. Today is easier with the internet.

OPPORTUNITY COST is the potential benefits that an individual, investors or business misses out on
when choosing one alternative over the other.

Example: a company invested cash reserves INTERNALLY for a return of 10%, nasa cash flow lang.
But they could invest it EXTERNALLY for 12% (stocks). The opportunity cost or economic cost is 12%.
Accounting cost is zero.

Example: Going to movie you will spend P 320.00

Going to work at P100 per hour, your opportunity cost P 400.00 if you choose going to
movie.

Example: A man is looking for special cutting tools.

Going to Avenida, it will cost him P 500 pesos for fare and snacks plus time spent for going to
Manila. But the price is only P 400.00 or a total of P 900.00 expenses.

Savings P500.00= opportunity cost.

Buying at nearby store will cost him the price of the tools at P 900.00 But it is not the actual
specifications he wanted. What will he do?

Search cost P 500.00 plus time.

Some consumers have a low reservation cost for the Product.

Reservation Price for the buyer is the bottom line that they are prepared to pay.

No urgency to buy so they wait until the price is fit to their level.
With this differences between company’s objective and consumer’s characteristic, there were
strategies for pricing for each of objectives to suit with various consumer’s characteristics.

We have the following:

Differential Pricing for various segments of buyers, places and time.

Competitive Pricing that will address the competitors and consumer wants.

Product Line pricing that focuses on their product’s image, packaging, marketing promotions
such as complimentary products and pricing. (topic for next week.)

COMPETITIVE PRICING based their price from competitors. They made research and utilize their
competitive advantage.

Examples:

Amazons who utilize their popular products. Provides great customers service experience. Easy
to operate, fast customer order, smooth to check out and stress free return. With all this they offered
competitive price.

Apple. “You get what you pay for.” Why they can price higher because they utilize PRISTEGE
PRICING. Brand was established already a household name. So customers are willing to pay for the price.

TACTICS:

a. PRICE SIGNALING- Offering HIGH price than competitors to influence consumer’s perceptions of
HIGH QUALITY. This signal is effective if the product serves what the consumers wanted.

Sometimes this is also made by competitors to set a high price in an agreement. (example:
sugar, rice and sibuyas)

Two variations of price signaling: Reference Pricing and Image pricing.

Reference Pricing Examples: Based from past experience or existing product. Setting the
mindset. Toothpaste priced at 90 per tube vs. Two tube at 150 pesos. (in buyers mind it will only
cost 75 per tube.
b. PENETRATION PRICING offering low price during initial offering to attract new customer.
ALSO KNOWN AS LOSS LEADER PRICING intentionally sold at a loss or minimal profit to
attract customers hoping that they will also purchase those higher margin products.

They make advantage of the ECONOMIES OF SCALES.

ALSO applicable to product losing market shares. Example KOMIKs which was eventually replace
by pocketbooks.
 Video games such as Nintendo which was overtaken by sonny play station which was eventually
replaced.

Karaokie which was eventually replaced by videookie.

Betamax, VHS, CD’s

PRODUCT HAVE ITS OWN LIFE CYCLE TOO.

PENETRATION PRICING also help companies to build early customer base.

Example: Internet and cable provider. Sky cable, Destiny cable and cable link. (original)

Air cable, Asian version in zambales, batangas and quezon. Royal cable in laguna.
Filproducts TV in visayas and Parasat cable TV in Mindanao.

Hospitality service company such as restaurant HOTEL AND MOTELS, CASINOS OTHER TOURISM
RELATED services. They offer promo like book 3 nights 1 night free..

PENETRATION PRODUCTS. Some grocery stores use penetration product for their strategy.
Example. They will lower some common products like laundry soap , shampoos and other so that people
will think that they are selling lower price and become household talks among Marites.

PENETRATION PRICING STRATEGY. Can increase sales, profits and market sales but the risk is
when customer return to their original brand once you change the price. The key is to retain your
customer. Offer them more aside from price.

Sales gimiks and Discounts. Sell them card that earns points.

C. EXPERIENCE CURVE PRICING.

Experience Curve occur when firm exploit their production experience. More experience
firm can reduced their cost based from increasing production volume.

Example: 10,000 pesos at 5000 units P 2.00 per unit

10,000 pesos at 2000 units P 5.00 per unit

Experience Economies can occur independent of with Economies of scale.

Economies of scale –cost advantage reaped by companies when production becomes efficient.
Increasing production and lowering cost.

Experience Economies. The firm must be more experienced than their competitors so their price
can be set lower than their competitors.

Experience economy, an economy in which many goods and services are sold and priced
emphasizing the effects they can have on people’s lives.

Example: Starbuck price is higher because they sell more than coffee but also the experience of
cozy ambiences and WIFI benefits.

EXPERIENCE IS BOTH POSITIVE AND NEGATIVE ASSETS OR VALUES.

All have special Transaction Cost.

Firm often consider consumer’s needs and exploit their competitive advantage. Exploit
consumer’s geographic area. Example: water in Filinvest. 10 pesos sa groceries, selling at 15 to 20 per
bottle.

GEOPGRAPHIC PRICING. The practice of adjusting price based on the location of buyer.

Example: Gasoline and petroleum products.

Komiks and Magazines and newspapers.

Aside from transportation cost as reason, Some companies exploit this to penetrate new market
and developed market shares.