Pricing Strategy and Brand Value Proposition

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Amazon has garnered a dominant market share with its online pricing strategy and showrooming. By understanding how your customers shop offline you identify opportunities for conversion from offline to online. Conversely the Brick and Mortar Stores are at risk with showrooming where consumers choose to browse items and buy online at lower prices.

Amazon Prime Members display stronger showrooming tendencies as it comes armed with free shipping and no minimum order requirement.

Principles to guide your Pricing Strategy

1.Anchor Pricing
Anchoring refers to the human tendency to rely too heavily on the first piece of information offered when making decisions.
This bias is why a $2,000 watch almost seems like a bargain next to a $10,000 watch, but would seem  like a super-premium purchase when placed next to a $49 Timex.

2. Dynamic Pricing
By the time the customer has arrived at your product, they already have a good idea of what it should cost. Your pricing needs to reflect real-time market conditions so that when these customers arrive, their expectations on cost are met.

  1. Best Possible Pricing
    With the ever-growing trend of price comparison website and applications, it may seem that the only way to entice customers is to beat everyone’s prices. After all, if everyone is comparing prices and yours are the lowest that should equal more sales, right? We can comfortably answer that question with a very positive “maybe.”

Having the lowest price may bring you some additional business, but it also drags you into a downward price spiral and puts your business in a position you may not want to be. Having said that, being the cheapest can be a useful strategy to help meet some short-term needs your business may have such as boosting a slow sales cycle, or emptying out inventory.

The lower prices drive more traffic that makes up for the decreased profit margins. However, you still need to ensure that you can afford to sell at the cheapest price without taking a loss, and more importantly, you need to be aware of what that cheapest point is in the market at any given moment.

  1. Differentiated Pricing
    When you have items that are similar but with different features (for example, a crew-neck shirt and a V-neck shirt), you should consider testing sales by changing their prices so that they are slightly different from one another. Slightly different Prices are known to more sales.

The price you anchor from should set a product benchmark with the value you propose to deliver. If you propose to deliver high value, as De Beers does, set an anchor that articulates a clear expectation for what consumers can look forward to.

Brands tend to focus on the tangible costs when they look to set such a value, but in todays’ experiential economy, intangibles are a critical element of the value equation.

With that in mind, here are nine value influencers defined by Mark Di Somma.

  1. The value of what the product does to the person buying/using it – how does it positively impact their lives? What contribution does it make to them socially, communally and personally?
  2. The ease with which they can access similar functionality – how common is that? And what do others charge to deliver something similar, and something very different?

  3. The power of the brand – what the brand’s own story tells the buyer they should anticipate paying.

  4. The perceived value of the components – vital for brands with ingredient brand components (such as Intel) but also for brands that use formulations (e.g. beauty products) because it adds to the perception that the consumer is getting more for their money, or that the brand is more accessible because it uses generic ingredients. Either way, components can help ‘explain’ price.

  5. The look of the product – Is it an aspiration building product or a service that promises luxury. Packaging too transmits very powerful “value” signals.

  6. The demand for the product against supply – previews, press and social media coverage can fuel “must have” or “must ignore” status, heightening or degrading perceived value.

  7. Where is it available – setting sets strong price expectations because environment can have such a powerful effect emotionally. The same goods available at a street vendor for example are likely to cost less than at a conventional store because the buying experience is so different. The same may not be true for online and offline purchases.

  8. Service levels – the levels of support that come part and parcel with the product versus those that consumers must pay for. This is changing rapidly in some sectors like aviation as brands look to charge less upfront but also include less. Particularly at the budget end of the market, service at anything beyond basic maintenance is increasingly a fee-based addition. This allows value-conscious brands to anchor their prices lower, making them appear more attractive.

  9. The “world of difference” coupon – the extent to which buying the product makes a difference to the world, either through what the brand has done ethically or what it plans to do as a result of the consumer buying. The lower the price premium, the lower the expectation that the brand will contribute globally.

The key thing to remember about these influencers is that they are volatile. Each one shifts in worth (and therefore influence on the anchoring price) depending on its priority to the buyer at the time, the relative attraction of others and the extent to which a brand has been able to develop and sustain loyalty with that buyer. In most cases, brands should be looking to improve the proposed value on an ongoing basis, or at least retain current margins in the face of commoditization, through a combination of small and larger changes to these value influencers. Such changes, brought to market and promoted socially and in the media, give consumers a sense that they are continuing to pay the right price for what they are now getting.

To keep Brand pricing competitive regularly audit the proposed value against the proposed price with respect to the competition.

Source: Aisle to Amazon Study – Placed.Inc
Branding Strategy Insider – Factors that help you anchor your brand price
Econsultancy – Top Three Pricing strategies

Image Courtesy of Renjith Krishnan, freedigitalphotos.net

 

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