Ah, price, it's a tough one isn't it?
Some people will tell you that it's all made up anyway, but it is important to understand why price matters and how it forms a crucial part of the marketing mix.
Aside from pricing strategy - and we’re not going to look at that here as there are lots of articles that deal with it perfectly well - why is price part of the marketing mix?
Because it’s a vital part of the information people use when choosing whether to buy, or not.
This is particularly important if customers don’t know the product or service well or don’t have much to compare it to.
Alongside the branding and any other information they have been able to find, the price is a good guide - or it can be - to what they can expect to get for their money.
Sometimes price - low price - can be the absolute driving force behind a purchasing decision. Consider motorists. Some will drive far out of their way to find the cheapest petrol they can. Others will put convenience ahead of price and choose the petrol station that is closest to their route. Of course it may depend quite a bit on how much is left in the tank!
But usually price is - even subconsciously - a much more nuanced affair in the minds of consumers.
An associate told me a story once that highlights this point very well. He was advising a young artist who was selling his work for a few hundred pounds and doing okay in his local area but he wanted to sell to wealthier clients in London. My associate advised him to put his price up tenfold if he wanted to be taken seriously. He took the advice - incredible though it seemed at the time - and is now struggling to keep up with demand. The customers he was looking to sell to would not have looked twice at his work if he had kept the price low. Their perception was that the high price = good art.
Now I’m no judge of what makes good art, but in such a subjective market, price was important but for completely the opposite reason to the petrol buyer.
The same goes for services. Consider for a moment that you are a marketing consultant… If your price is low prospective clients may assume (rightly or wrongly) that you are fresh out of uni with little real industry experience and that they will “get what they pay for”. Price your service higher and clients may consider that you are therefore worth more.
Health warning! Just charging a higher price and hoping to attract wealthier customers may work for art but it won’t work - for long - for a marketing consultant. You will quickly be found out if you can’t deliver the goods. In fact the same is true for most goods. People may buy once but they won’t be back if they find the high price was not justified and the damage to your reputation will be hard to repair. Your price - like all elements of the mix - must reflect the true value of the product or service to the customer.
Just briefly on pricing strategy then, despite what I said at the start of this article. When developing a marketing strategy, there will be lots to consider when arriving at your price. You will naturally look at competitors and the market in which you are operating. You will consider all that I’ve said above in terms of where you want to position your product or service. Are you entry-level or premium? Who are your customers and what will they expect to pay? You will of course have to look at your costs and work out what is break-even and where you begin to make a profit. Margins are very different for different businesses so there is no easy formula for this.
Do you want to break into a market by undercutting your competition (penetration pricing) or can you charge a high price because you are genuinely offering something different or new (price skimming). What about price bundling, captive pricing and optional pricing. OK, we’ll leave all that to someone else to cover but the message is that there are many strategies to consider and each will have a different impact on the success of your venture. And each will deliver a different message to your customers.
Even established businesses need to look at what this message is saying and what that means for their bottom line.