If the price is right. Pricing strategies that stop customers chasing prices ~ Brand Mix

Monday, May 10, 2010

If the price is right. Pricing strategies that stop customers chasing prices

Photo: Captain America's low priced shield by el fedora on Flickr

As promised last week, more on the HBR article by Marco Bertini and Luc Wathieu on how to stop customers fixating on price. Bertini and Wathieu argue, paradoxically, that pricing itself can be the most effective weapon. They outline four approaches:

1) Price restructuring: If you have an advantage over your competitors, can you figure out a way to restructure your price to focus consumer attention on that advantage? Example: Orica put focus on the extra explosiveness of its industrial explosives by changing its pricing to charge by the results (rocks blown up) rather than by the stick.

2) Willfuly overprice: Can you (dare you) use high prices to break clear of the competitive set? If products are priced outside the band of competitive offers, consumers don't automatically reject them--they are actually motivated to take a closer look and try to understand what makes them worth it. Example: Burt's Bees charged 80 to 100% premium for its personal care products but it has been a great success. Consumers rationalize their decision to buy because of the company's use of natural ingredients and its commitment to social responsibility.

3) Partition prices: Can you break an item into its component pieces and price them individually? The idea is that consumers pay the most attention to the offer price and will then consider other benefits if they are priced separately vs. bundled all together. If you've ever been through (and you have) a purchase process which starts out sounding like a great deal but then, added fee by added fee, gets more and more expensive (and annoying), you've seen this strategy at work. Examples: Airlines

4) Equalize price points: Can you price everything the same instead of pricing on a cost-plus basis? The idea is that pricing complexity forces consumers to think about price whereas a single price stops consumers thinking so much about it. Examples: Swatches single $40 price point for all its watches and iTunes 99 cent pricing on all its tracks.

None of these pricing strategies is easy to deploy if you are in the middle of bloody and cut-throat price discounting war. And consumers may prefer the status quo because they like to price compare and get the best deal. But what I like about all these approaches (well, except for #3), and why they are worth considering, is that they offer ways to try and win business without cheapening it at the same time.

1) How to Stop Customers from Fixating on Price by Marco Bertini and Luc Wathieu in May's HBR (subscription required)

More reading:
The popcorn puzzle, an empirical investigation: Marginal Revolution (which talks about another pricing strategy--charging more for things like popcorn and razorblades (the "after market") while keeping the entry price low.

1 comment:

Erik said...

Pricing can make a big difference. I have a Mach 3 razor from Gillette. Recently I was at Costco looking for replacement blades and found a pack of 20 for around $35. Right next it I saw a M5 Magnum with 20 blades with 5 on each and a razor for 1/2 the price. I am not expecting the blades to perform as well and they don't but the price trade off for me is worth it. If they were just $10 cheaper, probably not. If I were Gillette I would have a temporary price cut so people don't switch.
Good post.
Erik Johnson http://www.BrandAidblog.com

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