Friday, February 12, 2010
Value-added pricing is a pricing strategy that attaches value-added features and services to differentiate a market offering and support higher prices, rather than cutting prices to match competitors. (Kotler p.262) To increase their pricing power, many companies adopt this strategy. Rather than cutting prices to match competitors, they attach value-added features and services to differentiate their offers and thus support higher prices. Their focus is not mainly based on the price to boost annual sales, rather, they keep customers loyal by providing service the customers can't find anywhere else.
An example would be The Whole Foods Market. As everyone might have known, The Whole Foods Market offers natural and organic foods with relatively expensive price compared to other foods retailers. Now that the economy is in recession (and actually is recovering), a lot of consumers are tightening their belt by cutting down on spending, including their purchase of foods and groceries. What makes The Whole Foods market survived within the economic downturn is because it has been able to adopt the value-added pricing strategy. Whole Foods was hit hard by the recession when shoppers cut back their spending. However, according to canadianbusiness.com, the grocer said last quarter that the company is undergoing its emerging recovery. Here is what's special about The Whole Foods Market.
1. Firstly, they add siginificant value on the customers grocery shopping experience. The store's layout and appearance are different from other retailers or grocery stores such as QFC, and even their competitor, Trade Joe's. One of Whole Food Market's philosophy is providing a trip to Whole Foods Market is a place to explore. Its stores are spotless and the merchandising displays are beautiful to the eyes. Shoppers are encouraged to taste and touch almost everything in the store. What's more, Whole Foods Market also pampers the customers' sense of smell as te smell of bread, coffee, smoked meats, and fresh fruits permeate the air.
2. Secondly, The Whole Foods Market believes in its customers as their "evangelists". They offer extraordinary customer service and exceptional customer experience, because they beileve that their customers are going to "give back" to them by spreading the good words of the Whole Foods Market. So, instead of using traditional advertising vehicles, WFM uses the influential power of customers as the advertising vehicle.
There are may more values that the Whole Foods Market add onto their service and treatment to customers. Based on those values, Whole Foods Market is not afraid to sell their products at a higher price than their competitors', thus, applying the concept of value-added pricing strategy.
Clairine B. Runtung