Explain why the price of a good or service must be high enough to cover per unit costs, at least in the long term, but cannot exceed its value as perceived by the customer.
Introduction
Perceived value in marketing refers to the difference between a potential customer’s evaluation
of a products benefits and its cost compared with other products in the same category. The
perceived value of a product is equivalent to benefit/cost (Kotler et al, 2012).
- The price of a good must be able to cover the costs per unit that has been used to produce
it. If the cost per unit of product is more than its price per unit then the product cannot make any
profit in the short or long run. If the selling price per unit is slightly more than the cost of the
product then in the long run the product can break even. But if the unit cost is more than the
selling price the product can never breakeven or make any profits (Mullins et al, 2013). - Yes. Perceived value is critical to the success of a product in the market. It’s arrived at by
dividing the benefits and the cost of the product. Customers purchase products based on the
utility that they derive from the product but the perceived value also influences the customer’s
choice of a product. Companies deliver value by improving the value of its products through the
cost ratio. When companies deliver value but increase the price of its products substantially the
perceived value reduces but it delivers high value for low prices the perceived value increases.
The critical component of attracting perceived value is by attaching real value to the products.
For example, to identify the perceived value of a product; a) The attributes and also the benefits
of a product must be assessed quantitatively. b) The assessment of the performance of the
company’s and competitors products must be carried out. c) Examination of the assessment
processes by customers of major competitors. d) Monitor how the perceived value is rated over
time.
- Easyjet is a UK airline that operates ( www.easyjet.com ) over 600 routes across 30
countries globally. In 2013, the airline flew over 60 million passengers. The airline maximizes
the use of its planes and maintains a simple process for air ticket purchase system through its
website. The company maintains an excellent operating system with low overhead cost resulting
in an efficient operating system than provides value for its customers. Easyjet provides
affordable and easy travel for the company’s customers. It has a strong perceived value among
its customers. - The objective of product positioning is to create a lasting image on the mind of a
customer about his target product as compared to other products in the market. To maintain a
current picture of a product in the mind of a customer is a challenging task for any marketing
manager. It requires heavy advertising expenses and constant rebranding to keep a product
current hence it’s very costly to the company. The marketing manager has also to constantly
monitor the performance of the products in the market while evaluating and comparing it with
other competitive products in the market (Kotler & Armstrong, 2010). - Easyjet provides several classes of products in the market which have been tailored to
suit the various clienteles that make up its customer base. Over the years Easyjet improved its
seating arrangement by adding 180 seats in A320 model aircraft while reducing the number of
seats to 156 in the A319 series. The seats have also been up-gauged to the new standards of the
A320 model and also improvement of the seats to the current standards of the A320Oneo model
styles.
References
Blythe, J. (2008) Essentials of Marketing, 4th Edition, Essex; Pearson Education Limited
Kotler, P. & Armstrong, G. (2010) Principles of Marketing, 13th edition, London: Pearson Education
Ltd.
Kotler, P., Keller, K. L., Brady, M., Goodman, M. & Hansen, T. (2012) Marketing Management, 2
Ed. Essex: Pearson Education Limited.
Mullins, J., Walker, O., & Boyd, H. (2013). Marketing management: A strategic decision-
making approach. (8th ed.) New York: McGraw-Hill Irwin.
