Marketing pricing strategy impacts your Business and Brand the most
Marketing pricing strategy impacts your Business and Brand the most! Since 2008, the price-value-quality equation has changed radically in all industries, influenced by a) consumers’ lower disposable incomes, b) the existence of millions of online substitutes to consider and buy, c) the increasing maturity of buyers asking for more value-exchange, more guarantees, and unique experiences, and d) loosing business to the companies that have increased their added value. When business owners continue the routine of low-lower-lowest prices have limited Growth & Brand potential.
Marketing pricing strategy isn’t a demand “elevator”
Marketing pricing strategy is one of the most under-appreciated, under-utilized tools in the marketer’s hands. If only every marketing manager and the small business owner knew the power of pricing and what perceptions it formulates, they’d be so much better positioned to succeed and grow.
Many companies compete on price. Some do it intentionally, like retailers, always trying hard to offer the lowest prices. Others do it without necessarily making it a part of their strategy or brand promise; they just watch-out competition closely and when prices in their market change, they change with them, not knowing exactly why, but worrying that their customers will simply flock to a competitor with lower pricing.
What always worried me, was that when most marketers think about price, they seem to think that magically you can increase demand and sales volumes by lowering prices. What’s the long-term benefit of the business and the brand? …how come we never talk about higher prices?
Why don’t we ever talk about price increases?
Think about the price you charge for your product or service. What would happen if you increased your price by 1%? Most people would have no big issue. That’s because 1% sounds like a tiny change. The same amount of people would probably still buy, and revenue would go up 1%. No big deal.
But why on earth we have come discussing pricing only as an “elevator” equation of market-demand? Why don’t we discuss pricing in the context of value-exchange and specifically value-add offerings? To all business owners: the game has changed!! Consumers and end-users expect to get the best price but as a value-exchange od personalized experiences!
In my professional experience, the price “up-and-downs” tactic is pretty easy for micro and medium-sized businesses. You see, there a lot of thematic, seasonal discount periods. But this is no Strategy. When you try to associate your pricing with a value exchange …now, that is a much tougher call, that asks for strategic and long-term view on business and Customer. You increase the price. Why? What is unique or more special than the average competitive offer? What do you give more? More smiles, benefits, add-ons, guarantees, support? What’s more into it?
Make your Customer pay more
If your customers shop with you only on price, you should start worrying. They don’t get hold of a brand experience, but only an impulse behavior out of a price comparison. Measure this, perception-wise. Survey into it. Audit competition online. What do they do to get an increased premium?
In 2009 when the Chinese low-cost products started invading Europe, everyone felt that the right response is to lower prices. But here is the crazy thing: Customers always will be cautious of prices, but they are in search of maximum quality, uniqueness, emotional assurance, and value-benefits. The web economy is educating them to search more.
In other words, the only way to “resist” the low-price wars, is to increase the perceived and delivery (personalized) experience you sell. Then, your pricing strategy will be liberated from a copy-me-too choice, because you will be offering something consumers can’t get anywhere else. Then, there are more chances that they’ll support your brand, will believe more in your promise, and will share your worldview!
Stimuli to discuss and share
When Bruce Springsteen, 67, decided to run a show at Broadway (aug. 2017) with fewer than a thousand seats (his average shows were 40K +). He combined the ‘for few’ show with reading and offering his 2016 autobiography, “Born to Run,” (increasing the value-exchange) and inviting fans because “My show is just me, the guitar, the piano and the words and music,”. Not a typical event, right? But the brand Bruce with his pricing strategy rejected the laws of marketing and economics. He limited ticket prices to between $75 and $850 and he offered them through a lottery that included identity verification. His goal was to prevent scalping. Yet not everyone who bought tickets got them at those prices. The tickets that have leaked (lottery, right?) onto the open market from StubHub ranged from $1,200 to $9,999. Mr. Springsteen left a great deal of money on the table and impeded the laws of the marketplace. After all, some people got tickets for $75 for which others were willing to pay four figures.
(source: StubHub, NY times)
JC Penney was one retailer that did not win at the discount game. when it tried to get rid of its long-standing coupon strategy and replace it with the slogan “everyday low pricing.” Instead of winning more customers to its new discounted retailer image, it lost customers because it appeared as though consumers were more about the idea of something being on sale than they were about wanting to be seen shopping at a discount store. The discount game took away from anything positive in the retailer’s brand image, replacing the idea of value with a sense of cheapness in the minds of consumers. Even an attempt to bring back the old strategy has yet to really help J.C. Penney regain its footing in the retail market, illustrating how such a dramatic shift in the brand image can truly alter audience perception about that brand. Learning: once you go low-prices-only, there’s no easy turning back. No story can fix the broken brand DNA because you’re not anymore the experience you’ve promised to be!
Low(er) your price. OK, they buy once, twice. Suddenly they skip to a more interesting story, that offers mystery, sensuality or more rational benefits. If this happens, the business owner with lowered prices is in ‘death spiral’ with decreasing profits. The competitor with an increased value-exchange rips all the benefits.
Brands weren’t meant to be price-only propositions
Value propositions might seem silly to senior marketers and business owners, or to the so-called digital experts. But they aren’t. Because when you establish a reason, other than price, for customers to shop with you, you remove the need to compete on price.
Competing on price is hard; it will eat into your profits and force you to cut costs. Read how Walmart is also using tech (footing in the Amazon era) to tweak its pricing strategy, as its CMO Tony Rogers reveals.
European micro and small businesses don’t get it, that retaining your franchise and customer-base and grow more, they must offer something more. More value. More benefits. More information. More automation. More support. More storytelling. More origin. More service excellence. More delivery and payment options. More smiles. More tips. More packaging. More ‘freebies’. More brand associations. Can all these be replaced by a discount?
Big data will guide your pricing, soon
Coming closer tot he Big Data era, integrating IoT access services for any industry, any segment your Customers will start searching more online. That means that you will be able to monitor their web preference behaviours and social media to predict demand waves and adjust prices.
In the US they are now fixing online, real-time pricing for 73.000.000 product codes (Macy’s).
Now, if you’re not planning your digital transformation story is another subject, but what will you do then with your pricing strategies? Will you continue fixing those yourself or by some old-logic commercial-cost formula your purchase and salespeople tell you to?
Also, mind your cost-structure
Business owners, startups, consultants, and intermediaries often forget that price is a very simple number to tackle. Basically, all you have to do is ask, how much money do I need to hand over this solution or product or service to a Customer, right?
But cost-structure is more important to entrepreneurs; more real-life and more complicated than the price. You might say, the cost is easy to define: list of all operating expenses, utilities, salaries, production etc…. it’s not these! Cost is how much you put into your product and service, for support, customer care, benefits, and solutions.
The cost might be your lack of focus and the cost of storage. The cost might be the wrong investment when going to exhibitions, instead of investing in the product. Cost is all external cash-out, plus all the side effects. Can you plan, manage, and increase company efficiencies?
Cost matters more than the price. Because at the right cost, your company will thrive. Planning only for (low) price is your ‘death-spiral’ trap and a certainty you are not building for the brand. My views aim to contribute to what you do. If you wish to get any support for brand and pricing marketing decisions and how to build your value-exchanges, you can use the “Borrow my Brain, Business” session to help you redefine growth.
I really hope you have success in your efforts to price and win for Growth.