Q: Why do some customers buy brands which are priced considerably higher than
the price range indicated on the Customer Preference Report?
A: The range on the Customer Preference Report is a guideline and represents the “average” customer in each market segment. However,
even within a segment, there may be considerable differences among individual customers. Some are willing to pay more than others, and thus may be purchase a brand that they see as best for them even if the
price is higher than the indicated price range.
Of course, it is reasonable to assume that as the price gets higher and higher, there will be fewer and fewer customers willing to buy at that price. (Additionally, you might note that, in general, it is difficult to get good information on the “ideal” price—at best, it is more usually much more difficult than getting information on ideal levels of other features.)
Q: Do customers’ preferences change from one period to the next?
A: VRDs are still in the growth stage of the product life
cycle and each period brings new potential customers and new products. For most relatively new products—and that includes VRDs—it’s
reasonable to assume that customers preferences will change over time as they gain more experience with the product, its benefits, and the like. This question raises another one: if customer preferences change, would you expect them to change rapidly and all at once or is it more likely that preferences will change gradually as new customers enter the market, as product offerings (customer experiences) change, and as the product category becomes more mature and familiar?
Q: Will our target customers become confused or “penalize” us if we change our
price frequently (or substantially)? If we leave our product features the same, but raise (drop) our price will customers think we are taking advantage of them (have cut corners on our product)?
In general, it is desirable to avoid erratic and/or frequent price swings. However, since your product is generally a one-time purchase—rather than something purchased regularly—customers
may be less aware of price changes from one period to the next. There also may be clear advantages to changing a price level, even substantially. For example, if the price was set so low as to leave virtually no gross margin, then there really is no alternative but to raise price. Conversely, in some situations a price that is too high makes a product a bad value in the eyes of consumers. If you figure out that has happened to you, it’s much better to fix the problem than to just do more of the same thing.
Of course, price doesn’t operate in isolation. If some competitor has a similar product but its price is closer to what customers expect to pay, that competitor may steal away the customers. On the other hand, a lower price is always more attractive to customers. In some situations raising the price may make the brand more attractive to some segments—particularly those segments that have a higher reference price because they are using price as an indicator of quality or status. Some companies get into trouble because they are trying to target customers who want a marketing mix that is costly to provide, but the company doesn’t have a high enough price to make profitable to serve those customers.