Planet Client | Product pricing as a marketing strategy

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In the first of two posts examining the importance of pricing in purchasing behaviour, we look at why customers and clients get so hung up on price.

By Sean Ashcroft
FACED with an abundance of options for products and services, it can seem customers and clients behave as if only one factor matters in the buying decision: price.

A report by Harvard Business Review – called How To Stop Customers From Fixating on Price -- explains that this price obsession is because customers and clients view products and services as commodities.

Report co-author Marco Bertini, assistant professor of marketing at London Business School, says the problem, while thorny, in not insurmountable.

Product pricing as a marketing strategy 1. Undercutting peril
Bertini observes that while most markets today are mature enough to feature intense price-based competition, “the constant undercutting to capture customers sometimes spurs efficiency gains, but more often it damages brand equity and erodes profit margins”.

He adds that this is compounded by low expectation on the part of customers: “They fixate on price, and lose interest in marketing communications and all but the most radical innovations.”

But Bertini contends that it’s possible to “jolt customers into considering the value of your offering in terms of quality and personal relevance”. He explains that the idea is to persuade customers that they have a meaningful decision to make, and that the way to achieve this is -- paradoxically – to use the last thing businesses want to be decisive: price.

Product pricing as a marketing strategy 2. Four strategies
“Our research suggests four pricing moves in particular can diminish the salience of price in a transaction,” says Bertini, who goes on to outline these options:

1.Pricing structure Companies can change pricing structure, as Goodyear did when it priced tyres according to how many miles they would last.
2.Stimulate curiosity Willful overpricing may seem like a counter-intuitive strategy, but it will get you noticed. UK cosmetics company Burt’s Bees took this approach does with its natural beauty products.
3.Price partitioning Price can be ‘partitioned’ to make customers notice a key benefit. IKEA does this by charging separately for a table’s top and legs, thus alerting customers to its modularity.
4.Blanket pricing Bertini says firms can put the same price tag on a range of options, causing customers to weigh their preferences. Swatch took this option when it charged $40 for all of its watch designs.

What all of the above strategies share, observes Bertini, is the close link between pricing and customer attention -- a link that’s not yet been explored by marketing adademics, and one with significant implications for businesses.