Question

4) Explain three challenges that managers are likely to encounter when implementing value-based pricing and potential ways to address the respective challenges. 5) Explain (a) how and why Distribution Traps occur and (b) for which type of product such traps are most likely to be observed.

Answer 1

Three challenges that managers are likely to encounter when implementing value based pricing are as follows;

1. Lack of customer research

2. Market segmentation and determining segment specific pricing.

3. lack of Competitive Analysis

The following are the ways to address the above mentioned challenges :

1. Identifying what customers actually value and why instead of depending on internal opinions/ preconceived notions.

2. Market Segments may vary in different geographical / demographic scenarios and hence a glocal ( global and local) approach towards market segmentation may be necessary to determine area/ segment specific pricing.

3. A thorough comparison with the value based propositions offered by competitors for determining maximum value vis-a-vis price.