I am just wondering how many theories backed by case study which you one learns in B-school have no relevance in real world. Or is it that I have not understood them properly so finding it difficult to relate to problems in corporate world or is it due to my inexperience. I sincerely wish that second reason should turn out to be true.
Value based pricing was one the most abused word in all my marketing lectures. Every professor would provide “gyaan” that customer is willing to pay upon the perceived value of the product/service and not based on the cost aspect. It is duty of the marketer to create this value perception. They told us it is difficult for company to move from cost based pricing to value based pricing. The examples of Pepsi, FMCG products etc were standard. So it became mantra for us that wherever we work we must ensure that gradually we adopt value based pricing by educating the customer. But in real life situation is totally different. Consider for example entire outsourcing industry which came to existence due to cost factor. Now Indian players as outsourcing center played cost card to their advantage and gain competitive edge over other MNC. As Indian players matured the cost of employees in India increased manifold though nothing compared to US and Europe still. Further the new cost centers like China, Brazil, and Philippines etc emerged. Also most of the MNC established there delivery center in India and such places and have removed cost as differentiator. In this given industry landscape, there is no doubt that service providers would enjoy benefit if they go for value based pricing. But how can one make transition to such pricing strategy when you are never sure whether other player would adopt such strategy or not. It could be serious loss of business if industry as whole does not adopt it. Further how do you educate customer when entire industry came to existence because of the cost arbitrage. What about the competition arising from other parts of the world? So here the service provider can only succeed if it is adopted industry wide. But that is very difficult to achieve in fragmented market where there are large number of players. So this is one more theory learnt in B-school which I have found it difficult to implement due to real world constraints. In fact I was wondering in this era of globalization where buyers are well educated and connected across the globe how difficult is to sustain value based pricing for players in other industry too?
So my marketing friends pour your views, counter arguments on this supported by as much “gas” as possible.
Value based pricing was one the most abused word in all my marketing lectures. Every professor would provide “gyaan” that customer is willing to pay upon the perceived value of the product/service and not based on the cost aspect. It is duty of the marketer to create this value perception. They told us it is difficult for company to move from cost based pricing to value based pricing. The examples of Pepsi, FMCG products etc were standard. So it became mantra for us that wherever we work we must ensure that gradually we adopt value based pricing by educating the customer. But in real life situation is totally different. Consider for example entire outsourcing industry which came to existence due to cost factor. Now Indian players as outsourcing center played cost card to their advantage and gain competitive edge over other MNC. As Indian players matured the cost of employees in India increased manifold though nothing compared to US and Europe still. Further the new cost centers like China, Brazil, and Philippines etc emerged. Also most of the MNC established there delivery center in India and such places and have removed cost as differentiator. In this given industry landscape, there is no doubt that service providers would enjoy benefit if they go for value based pricing. But how can one make transition to such pricing strategy when you are never sure whether other player would adopt such strategy or not. It could be serious loss of business if industry as whole does not adopt it. Further how do you educate customer when entire industry came to existence because of the cost arbitrage. What about the competition arising from other parts of the world? So here the service provider can only succeed if it is adopted industry wide. But that is very difficult to achieve in fragmented market where there are large number of players. So this is one more theory learnt in B-school which I have found it difficult to implement due to real world constraints. In fact I was wondering in this era of globalization where buyers are well educated and connected across the globe how difficult is to sustain value based pricing for players in other industry too?
So my marketing friends pour your views, counter arguments on this supported by as much “gas” as possible.
2 comments:
I have received comment that value is important in outsourcing space and that is reason why India has been able to get larger pie than other countries because people see value in it. I agree to that but that doesn't impact my main argument. Cost is hygiene factor while Value is differentiator and winning factor. Outsourcing industry came to existence with proposition of providing same value at lower cost.So pricing is still cost based.
I can see that TCS is trying to do the value pricing thing by providing "domain expertise". So, they want to move up the proverbial consulting value chain from being simple idea implementer to being a business partner who suggests changes to processes (intellect/value part) and then implements and supports the same (profiting in this through a cost arbitrage).
Another classic example of value costing is all the cafe outlets. Greater that Rs 15 for any coffee is outrageous..but then you also factor in the "experience" provided in the outlet.
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