2. Value Creation

Question 1

Consumer’s incentive to purchase

Answer 1

= Perceived Value - Price

Question 2

Firm’s incentive to sell

Answer 2

= Price - COGS

Question 3

True Economic Value (TEV)

Answer 3

TEV = Price of best alternative +/- Differentiation Value

Question 4

Generic Pricing Strategies

Answer 4

• Skim: Price to capture a products economic value to relative price insensitive customers
• Penetration: Price below the Products economic value to most customers to attract large base of customers
• Neutral: Price in a range that most buyers would deem reasonable given its economic value

(More Details in the Slides)

Question 5

Determinants of Price Sensitivity

Answer 5

• Competitive Reference Price Effect
• Difficult Comparison Effect
• Switching Cost Effect
• Price-Quality Effect
• Expenditure Effect
• End-Benefit Effect
• Fairness Effect
• Transaction Value Effect
• Shared Cost Effect

(More Details in the Slides)