What’s in the price?

It’s on countless products in the grocery store: 99p, £9.99 etc. That’s psychological pricing. They want you to think the product is cheaper so you see 99p and you think: ‘Wow, it’s less than a pound! Well, my current problem is quite the opposite.

I have been working on increasing sales of a particular software product through aggressive selling but the efforts are not equalling the results. What I’m finding increasingly shocking is that my customers think the product is too cheap and would rather buy the more expensive products! Actually, it makes sense.

Imagine that after several months of awaiting the iPad, Steve Jobs put a price tag below any net book out there, for instance. The effect would probably NOT be more sales! Loyal Apple customers want quality so a low price may well signal low quality, whether real or perceived. So this is the plight of my product. I want to take a page from other industries like gaming, retail and even the car industry. In gaming, it is becoming popular to get certain games e.g. Tap zoo or Farmville for nothing. Then if the customer wants the accentuate their experience by adding more features or add-ons, they pay. A similar structure applies in the car industry- you get your ride at a base price and then pay a premium for add-ons like sat nav, alloys and heated seats for. This structure keeps the price sensitive customer but still attracts that customer looking for quality and is willing to pay more for it. I do this myself when I go shopping. I don’t like to buy the absolute cheapest item but tend to buy the mid-range. I too associate “cheap” with poor quality. Marketers concur that,

“Many consumers use price as an indicator of quality.” Kotler (2009)

But is this always true? Can a company not enter the market selling at rock bottom prices and go on the win market share? Maybe. It depends I think on the type of market. For instance, if it is highly competitive like retail, price sensitivity becomes very high and many customers will for buy at Asda not Sainsbury based purely on price. Of course, it’s not only price that matters. One should consider customer service, quality, support, ease of returns etc. Also there’s this strange thing about wanting to do what everyone else is doing….. What brands are my friends buying?

Anyway, for my dear product, I will need to roll my sleeves up and do the following to arrive at a plausible pricing strategy.

Segmentation analysis. Classify my customers. What is their behaviour and attitude towards my product? Who among them are promoters? Are their any detractors that will not repurchase or refer others to me? Why? Does it have anything to do with price or is there much more? How can detractors become promoters?

Competition analysis. Look at what the competition is charging and then evaluate market share distribution. How low is my price compared to the average price paid by customers?  Is it really about price or is the competiton actually just…better (ouch!)?

Communication, communication, communication. I can’t increase price without telling the customers why. And it has to be done right! There are a dozen ways to do this e.g. through sales ads, conferences, press releases, exhibition, free trials etc. Most importantly, there has to be an internal positioning statement that tells employees what space in the market this product is occupying. This bit is tough. It will also cost MONEY……. There has to be a budget in place, maybe based on % increase in sales anticipated from the price increases but they are other ways (Kotler et al (2009) has some ideas).

Engaging the team. People are your assets. If they don’t engage and empathise with customers to make this happen, you’re screwed. I’m screwed. Incentivise, give bonuses whatever- just make it happen. Many times it’s a chicken and egg scenario. People don’t want to put in the effort because they don’t believe it will yield great results. But if they don’t put in the efforts, there will be NO great results!

Determining the perfect price... (freedigitalphotos.net, 2010)

Premature Preliminary thoughts are:

It may be that I need to hold back some features from the standard product and then sell them separately as add-on features like my gaming pals. This is what I’m really pondering at this moment. See? You’ve got me going on and on and on. Business addict! 😉

Related authors:

Kotler et al (2009); Marketing Management

Farris et al (2006); Pricing Strategies (in Marketing Metrics: 50+ Every Executive Should master)

Heskett et al (1994); Service profit chain

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