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Price Strategy and Brands
Most of us are ignorant about prices. Experiments have shown that people will:
- Pay more for an item priced at Rs. 500 than one priced at Rs. 450
- Spend more when the Rs. sign is removed (1,500 vs. Rs.1,500) and more again if the comma is removed (1500 vs.1,500)
- Think that prices written in a smaller font are less than the same price written in a larger font.
- Buy relatively more premium-priced products than standard-priced products if a third super-premium products is added to the choices on offer but buy relatively less premium-priced product if a cheaper product is added to the mix
- Pay a lot more for any particular brand of product when it’s being sold in a fancy showroom than if it’s being sold somewhere at the next door retail store.
What is a marketer to do when faced with such ignorance? There’s economic reward to be gained by devising pricing and payment strategies that confuse the hapless consumer into handing over more money. But what about the impact on brand reputation?
Comparative Pricing: Consumers find it difficult to assess value without a frame of reference. That’s why comparative pricing is so common. Whether it’s sale prices (30% off) or competitor price comparisons (30% less than the other guys), marketers position their product as being good value compared to something else. These strategies are a core part of the marketing tools and are proven effective but with the moderate risk of brand dilution and commoditization—too much price discounting or focus on price can cheapen the brand. One flavor of comparative pricing with little brand risk is anchor pricing. This has become standard practice for software solutions with typically three tiers of pricing, a basic tier (often free) with limited options, a top tier with every conceivable bell and whistle and a middle tier that most people choose because it seems, in comparison to the two extremes, to be the best choice. you can see so many examples of this when you try and download software services on the internet.
Automatic Payment: Automatic payments are why you're still getting that magazine every week that you never have time to read. They are popular because they are convenient but also because they help people avoid even having to think about prices. It’s one factor that’s helped fuel app based taxi services like ola, Uber success. Rather than sit in a taxi and watch the meter click higher and higher, Uber has your credit card or mobile wallet credits and that’s all it needs. No physical payments. No worries.
Unbundling: Unbundling means pricing items or services separately rather than as part of a package. It’s been a lifesaver for the airline industry generating a lot of additional revenue. (Spirit generates almost 40% of its revenue from these non-fare fees.) Consumers hate these fees but pay them anyway because they shop on fares and just grumble about the add-ons. That makes the economics too compelling for airlines to ignore whatever the cost to the brand.
Dynamic Pricing: On the other hand, Uber has eroded its customers’ peace of mind by embracing surge pricing (aka dynamic pricing). When the same trip can cost different amounts at different times of day, that becomes something you have to think and worry about. Dynamic pricing boosts revenue but it has a cost in terms of impacting people’s trust in the brand.
Flat Pricing: Uber’s surge pricing model has given competitors an opportunity to differentiate themselves. Wingz offers an Uber-like service, taking people to and from airports but offers a flat-fee that brings back peace-of-mind to its customers. Sometimes simplicity and transparency that consumers will always say that they want will actually work out to be the best approach.
courtsey: www.brandingstrategyinsider.com
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