Wednesday, August 16, 2006

The Art of Pricing (2)

The final part of Mohamad Rafi's book on pricing tells us to consider the final integration of pricing into the big picture.

Pricing is not just about value,

Reasons to push the price up: it is also about the marketer's message to the consumer, this Rolling Stones concert ticket is worth $XXX or this Ferrari is worth $XXX.

Reasons that pushes prices down:

  1. to create marketing publicity, to create "sold out" consumer frenzy and keep hype and interest up, to be #1 on sales charts and thereby creating even more interest.

  2. to keep your core fans interested. E.g. sports tickets. Man Utd fans are the lower wage earners, not the plush VIPs.

  3. the market perception. E.g. a book above US$30 is considered "technical" and may not be bought by your target audience.

  4. to break psychological barriers: E.g. the US$1000 computer price.

  5. to maintain competitiveness: E.g. casinos offering freebies to whales, if you don't do it, they will move elsewhere.

What about fairness? When there is a shortage of water or fuel, do you engage in price gouging just because of economic forces?

Customer types and perceptions. Movie tickets hardly vary, even for blockbuster must-see films. Because the majority movie audience is accustomed to unvarying prices. However, prices for broadway show varies considerably because the musical and stage play audience has the capacity to handle large variations.

Consider the long-term ramifications, what about the damage to your reputation? Consider your relationships with your customers.

If you are offering discounts that are too transparent, those not getting discounts can be angered for not getting it.

Price as a marketing tool:
  1. 9 and 0 effect. $xx.99 denotes value. $x00.00 denotes quality.

  2. Payment structure affects behaviour. People who pay upfront may use a lot initially but in the end taper out.

  3. Prestige. Ferraris, Porsches price themselves to provide prestige.

  4. Anchor Pricing. If you don't have brand, the rule of thumb is to price yourselves 15% below a branded one. Anything lower, and people perceive it to be of low quality and not a bargain.

  5. Quantity and Phrasing of Prices. Buy 1 and get the next 1 at 50% off sounds better than get 1 at 13% off. Phrasing in terms of quantity sounds better and raises volume.

  6. Mention the value of the instalment rather than the lump sum, it sounds better.

  7. Bundle, and say you're throwing in lots of things free. E.g. Those sellavision late night commercials.

  8. Everyone loves a bargain. This attracts people.

Create a profit culture in your company, provide information to your sales staff on which is the most profitable, review your pricing policies, are the right customers getting the right prices, are there any holes in your promotions that enable people to tap loopholes, create a multi-price mindset, does the price reflect the value? consider strategic objectives, psychological tactics and the like.

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