Chapter 4 – Price & Value Communication Explain how to develop value-based messages to reflect key product characteristics Examine how to adapt value-based messages for important purchase characteristics Show how to communicate price to positively influence customer’s willingness to pay

Chapter 4 – Price & Value Communication The Problem: Customer generally does not know true value unless informed by seller. Value communication is important when your product or service creates value that is not readily apparent to potential consumers. Value communication is nothing more than information dissemination. Develop value proposition (i.e., compellingly unique & distinctive economic or psychological benefits). Communicate the value proposition, and Deliver the value.

Adapting the Message for Product Characteristics Relative Cost of Search Low “Search” Goods High “Experience” Goods Management Consulting Commodity Chemicals Greater Price Dispersion Investment Advice Home Equity Loans Auto Repairs Hotels Economic Benefits Desktop Computers Life Insurance Type of Benefits SUV’s Antibiotics College Education Blood Pressure Drugs Sports Cars Topic: Adapting the Message for Product Characteristics Key Learning Points for Students Realize the importance of the two key value drivers – relative costs of search and types of benefits sought. Tie these differences to the ways that consumers perceive value and how companies can communicate that value Teaching Recommendations An explanation of relative cost of search and types of benefits is key before looking at the quadrants of this matrix. It is recommended that you cover the difference between “search” and “experience” goods. Discussion Question(s) Dividing the classroom into 4 groups, assign students in each quadrant to consider the following: What types of benefits are sought in these types of products How the customers search for information? How do they determine differences between brands? How can companies communicate their value effectively to consumers? Fitness Equipment Unique work of Art Digital Cameras Psychological Benefits Cosmetics Exotic Vacations Designer Clothes

Framework of Value Communication Strategies Relative Cost of Search Low “Search” Goods High “Experience” Goods Strategy 1 Economic Value Communication Communicate Objective Information That Differential Economic Value Justifies Pricing (e.g., Computers) Strategy 2 Economic Value Assurance Communicate Assurances That Differential Economic Value Justifies Pricing (e.g., Investment Returns, Hotel Guarantee) Economic Benefits Type of Benefits Strategy 3 Psychological End-Benefit Framing Associate Differential Performance with Subjective Psychological Value That Justifies Pricing (e.g., Cosmetics) Strategy 4 Psychological End-Benefit Assurance Communicate Assurances That Total Psychological Value Justifies Pricing (e.g., Art, Exotic Vacations, Mattresses?) This slides presents the 4 key strategies to communicate value. Use this slide in conjunction with the example: Economic Value Communication: Communicate objective information that differential economic value justifies pricing. This includes message content containing objective, concrete, statistical information about your brand’s performance vis-à-vis other competitive brands, particularly focusing on quantitative information about differential economic value. Show and discuss the exhibits Marriott Timeshare, Reliable Software, and Kinko’s DocStore. Look for comparative ads that show differential attribute or benefit performance, especially ads that quantify differential value. In addition value communication tools are effective in this quadrant -- spreadsheet-based models, or web-based models that enable the customer to quantify differential value. Show and discuss the value selling sheet example, and the spreadsheet value-based selling tool. Economic Value Assurance: Communicate Assurances That Differential Economic Value Justifies Pricing. Because it is more difficult to judge differences between brands, message content is effective when it contains reassurances of the brand’s differential economic value – e.g., testimonials about differential value from customers, opinions leaders, or endorsers. Often information that is in narrative, story, or video form is effective -- with an emphasis on the brand name and trust. Some companies use case studies on a website, or do seminars, group presentations or exercises involving some type of personal selling. Ask the class to describe how money management firms communicate value to individual investors, especially those who know little about financial markets or money management. Psychological End-Benefit Framing: Associate Differential Performance with Subjective Psychological Value That Justifies Pricing. Here it is usually helpful to communicate value not in terms of direct product or benefit performance, but instead in terms of the end-benefit buyers hope to achieve from product use. Ask students: Why do people purchase designer clothes? Why do people purchase expensive sports cars -- for example, a Porsch? In these situations the most effective value communication strategy is to associate the brand’s differential performance with subjective psychological end-benefits that are valuable -- and therefore justify pricing. Show examples of ads that demonstrate this -- for example, the Duracell ad, or the famous Michelin series with the baby, or the Airfone ad. The questions these ads evoke are: What is the differential worth of the end-benefit associated with this purchase? Psychological End-Benefit Assurance: Communicate Assurances that Total Psychological Value Justifies Pricing. In this quadrant value is vague and ambiguous; buyers have difficulty judging whether one brand is better than another, and benefits are highly individualized and ideosyncratic. Consequently, value communication should focus on the total value of the end-benefit -- not the differential value. And narrative or image information is usually easier to process than statistical performance information. For example, many weight loss advertisements use testimonials of end-benefits (the final outcome), stories, narratives, or videos. Hair Club For Men is a good example of promoting value using this strategy, see http://www.hairclub.com. An interesting assignment is to have students find print advertisements that are designed to communicate value. The student's assignment is to explain what types of benefits buyers seek and the relative cost of search you might expect for most buyers of this category…for example, is the category complex and difficult to compare brand performance? Place the ad on the value communication model shown in this slide and then describe the value communication strategies appear evident with this ad. Psychological Benefits

Assignment Choose a product & identify (15 minutes) The target customers, the relative size of the market, and their desired economic or psychological benefits. The Value Proposition for the product; i.e., compellingly unique & distinctive economic or psychological benefits. How you will communicate the value to customers given high experience characteristics & psychological benefits. For example, what assurances can you offer that the product will deliver the desired psychological benefits? Price & whether you will negotiate discounts. Communicate value & price in 2 minutes