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Lecture Two: Outline

Lecture Two: Outline. Exchange Value You Are What You Charge For Exchange Value Over the Product Lifecycle The Consumer Surplus and Exchange Value Price Elasticity of Demand Consumer Costs Value Expectations Identify Market Based Alternatives Discussion Questions . Exchange Value.

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Lecture Two: Outline

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  1. Lecture Two: Outline • Exchange Value • You Are What You Charge For • Exchange Value Over the Product Lifecycle • The Consumer Surplus and Exchange Value • Price Elasticity of Demand • Consumer Costs • Value Expectations Identify Market Based Alternatives • Discussion Questions

  2. Exchange Value • Use value is subjectively assessed by customers, who base their evaluation of value on their perceptions of the usefulness of the product

  3. Exchange Value (cont’d) • Exchange value is realised when the product is sold. It is the amount paid by the buyer to the producer for the perceived use value

  4. You Are What You Charge For • Lecture one outlined Porter’s (1985) positioning strategies of focus, differentiation and generic.

  5. You Are What You Charge For (cont’d) • Kotler (2000) outlines a number of different pricing strategies

  6. You Are What You Charge For (cont’d) • Market penetration

  7. You Are What You Charge For (cont’d) • Market skimming

  8. You Are What You Charge For (cont’d) • Cost-plus pricing

  9. You Are What You Charge For (cont’d) • Competitive pricing

  10. Exchange Value Over the Product Lifecycle Source: adapted from Buttery and Richter-Buttery (1997) and Kotler (2000).

  11. The Consumer Surplus and Exchange Value Source: Adapted from Walters (2002)

  12. Price Elasticity of Demand (cont’d) McTaggart et al (1996) show that the formula for price elasticity of demand is equal to the percentage change in quantity demanded divided by the percentage of change in price.

  13. Price Elasticity of Demand (cont’d) • McTaggart et al (1996) show that:

  14. Price Elasticity of Demand (cont’d) • If the result of this equation is less than one, price elasticity of demand is said to be inelastic.

  15. Price Elasticity of Demand (cont’d) • If it is greater than one, demand is said to be elastic.

  16. Consumer Costs Source: Walters (2002)

  17. End user value and added value concerns of the value chain system • Walters (2002) shows that:

  18. End user value and added value concerns of the value chain system (cont’d) • Net value for end-user customer = Total benefits - Total acquisition costs

  19. End user value and added value concerns of the value chain system (cont’d) • Total Value Added by the Value Chain partners = Revenues - Operating costs & Capital charges

  20. End user value and added value concerns of the value chain system (cont’d) • Total Costs = Materials + Components + Services + Wages and salaries + Capital costs

  21. Value Expectations Identify Market Based Alternatives Source: Walters (2002)

  22. Discussion Questions • Identify a value proposition you are familiar with and argue whether its exchange value is justified. • What are the lifecycle considerations a company should make before assigning a pricing strategy? • How can long-term value based pricing be maintained for profitability? Give examples.

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