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Getting pricing right: Customers pay for value, so make it count

Price is a matter of perception but how you pitch it and weave it in with the value of your product or service will make or break the deal

August 03, 2022 / 02:25 PM IST
Representative image

Representative image

Small and medium enterprises are aware of the four Ps of marketing— Product, Price, Place and Promotion. Among the four, Price is the most problematic for SME marketers. It is a never-ending equation—customers always want the lowest possible price, while the marketers try to charge as high as possible. But, what does price mean to a customer?

Research shows that when the price is the only information available to the customer, different prices are associated with different quality levels. When information such as brand name, features and benefits are provided, there is little evidence to suggest that price equals quality.

Price is a matter of perception but in most cases, quality costs more.

Many SMEs advertise on TV shopper channels for household items or consumer goods. Have you noticed how they pitch their wares?

In a commercial, the presenter spends 10 minutes talking up one or two knives, then he quotes a price, let us say, around Rs 1,179. Seems high? If you place the order instantly, he promises three vegetable knives, a corkscrew, a melon ball maker, a juicer knife and a grapefruit knife–all for free. Instead of nine knives for Rs 1,179, you get two knives for Rs 1,179 and 7 free. What a deal!

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Do you notice what is at play here? It is not the price of the knives but how the price is presented that makes the difference.

As an SME owner or marketer, you need to be more creative when it comes to pricing options. There are broadly three pricing strategies you can consider and close deals.

1 Premium pricing

Rolex, Mercedes, BMW and Apple are among the brands that take great pride in the fact that they are never the lowest priced in their categories. They use the principle of premium pricing to convince the customer that they will be part of an elite group that owns their products.

For example, when a regular branded shirt is available in the Rs 1000 range, a premium branded shirt is priced at Rs 4,000 and above. Cartier watches start from Rs 230,000.

It may be difficult for small businesses to opt for a premium-pricing strategy, it is not unusual, at least in certain categories.

For instance, a Mumbai-based chocolate-maker commands a premium in most of the categories—starting at Rs 2,000 kg and that, too, for products with a shelf life of just 15 days.

2 Perceived value pricing 

How much value will the customer expect to receive if she purchases your product or service? When the customer looks at all the benefits, there is the perception that the price asked is a fair trade for the value received. This is the best strategy for consumer sales.

Remember a hard rule when embracing this strategy: every feature of your product or service must have a corresponding benefit else the strategy fails.

A feature is what a product has, and a benefit is what a product does, or what customer perceives to get. Features alone do not translate into value to the consumer.

A benefit is a betterment derived from using the product. The more benefits the consumer sees, the easier it is to justify the price.

3 Value–in-use pricing

To make use of this strategy, the customer must be made to look at the savings from the product use over its lifecycle.

The computer with the word processor was more costly than the typewriter but in the long haul, the user would become more productive and efficient. Energy-saving LED lights may cost more but use less energy and last longer.

This strategy is best used in business-to-business situations. Consumers often want a quick fix for a low price and will be reluctant to look at the savings over time unless educated well.

If you get sweaty palms and a dry mouth when the time comes to give the price to your prospect, you have not convinced yourself about the value of your product or service.

Unless you are convinced that the price is a fair value for the money asked, you will have a problem moving the product.

Make a list of features and benefits for each product you carry. Put a price on each benefit if necessary. Price is only a problem if you make it to be. We make our purchasing decisions based on emotions and use logic to justify our emotions. That's why the benefits are so important.

Make the customers’ life easier, cheaper, longer, or less stressful and you'll have a sale. Show them the value and they always pay. Why else would people buy the Rs 6,000 water bottle that reminds them to consume enough water during the day?
M Muneer is the managing director of CustomerLab Solutions, a consulting firm.
first published: Aug 3, 2022 02:25 pm
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