Page 128 - Marketing the Basics 2nd

120 Marketing: the Basics
the B2B side of marketing. Value-based marketing and pricing is critical for many firms.
In many industries there are two basic business models. In the high-tech industry for example, there is generally a low-cost or black-box model which focuses almost solely on price and that is the industry’s prime selling proposition. We call it black box because firms do not discuss or often even know what the technology is inside the box. In contrast is the full service vendor who not only has the box but also understands the technology inside it: they offer great service, advice on how to use the technology in your business and thus adds very considerable value to the basic hardware itself. The problem is that you must effectively communicate the extra value that your business model creates for the customer in a way that they will be willing to pay the higher price necessitated by your full service model. This is not easy with a black box competitor lingering around because they will keep hammering home their one simple point – they are cheaper! This is what they call a ‘no brainer’ decision, we are just as good but 25 per cent cheaper. But many firms, including IBM manage to effectively communicate their value and win their fair share of business.
VALUE PRICING
Value pricing is a method where the producer charges a low price for a higher-quality good. Large retailers often employ this pricing method to attract customers to their stores. Once within the store, the customer is more inclined to purchase non-advertised goods because of the convenience of buying all of their goods under one roof. To some degree Wal-Mart has a value pricing model with lower prices on reasonable quality goods; due to their incredible volumes they can negotiate the best price from virtually every manufacturer they deal with. One friend of ours sold to Wal-Mart and his firm had to agree that Wal-Mart would get the best price in the country which makes it easier for Wal-Mart to under-price its competitors and still be quite profitable. This idea also leads to the phenomenon of loss leaders, that is when some retailers, supermarkets for example, realize that very few customers know the prices for more than a few goods in their shops. Think of what prices you know of