Tag Archives: Pricing strategy

Aardvark Marketing Consultants | Pricing strategy

You paid how much for that makeover?

You paid how much for that makeover?

How much does a roll of wallpaper cost? No, it’s not a trick question. With so much debate in the media about the cost of redecorating a certain flat in London, I found my thoughts wandering to the subject of pricing strategy again.

Here at Aardvark, we talk about pricing to almost every client we have ever worked with and very often we’re trying to persuade them to increase prices. Or at least consider the possibility of changing their pricing structure.  However, I think a great many marketing professionals don’t get involved in pricing and this strikes me as very strange.

Price is one of the four “P”s, and in my view just as important as the other three.  I know there are many more “P”s now, not to mention collections of other terms beginning with other letters (we even talk about the two “C”s in success), but 35 years’ experience has shown me that the original four “P”s remain a great foundation for successful marketing.

If pricing isn’t right, it will dilute the impact of all the rest of your other marketing activity. It could even completely undermine it.  Too high and you’ll lose potential sales (now or in the future) and allow competitors to steal your customers.  Too low and you will most obviously leave money behind that you could have taken, but can also turn off customers or attract the wrong kind of customers in the first place. As a business owner, would you rather be a busy fool, sending our numerous quotes or proposals that don’t actually lead to good business or send a smaller number to better targeted prospects and convert a higher percentage of these? We worked with a local builder who achieved a better work life balance through this approach. Better targeted marketing and new messages enabled him to stop working every weekday evening. He no longer needed to go out on a site visit, measure up and then produce a detailed quote to homeowners who only wanted the cheapest option. He was able to switch his attention to fewer, ‘on-profile’ customers who appreciated the high quality of their work.

So how is pricing set in your business.  Is it a “cost plus” approach with a target profit margin?  Is it based on competitor analysis, aiming to maintain an agreed relativity to what the competition offer customers?  Or is it based on the perceived value of your products or services?

The value-based option is almost always preferable. It will encompass competitor-based pricing and if it means your margins are thin or even non-existent, then the business needs to re-examine its cost base.  And of course, the people in the business who know most about customer perceptions of value are the marketing team.  It’s our job to understand and represent the customer within the business, and that includes knowing what people are prepared to pay for our products and services.

Are we out there, talking to customers about value and how we compare to alternatives?  By “alternatives” I don’t just mean products and services like ours, but all the things customers could do instead of buying from us.

Or are we checking our competitors’ prices on the internet, and letting sales tell us the reason (excuse) they can’t hit targets is that the competition are so much cheaper than us?  Are we giving away price because margins are good so we can “afford” to discount?

Have you implemented a price increase recently?

And a final thought; if your suppliers are putting up prices more often that you are, something is probably going wrong!  If you’d like to understand how pricing strategy can improve both your business and your quality of life, why not email or pick up the phone to Gill or Chris at Aardvark?

Aardvark Marketing Consultants Ltd | Increase average sale

Could simpler pricing grow revenue and profit?

Could simpler pricing grow revenue and profit?

How many business owners haven’t worried about the pricing of their goods and services?  Not many, I think.  We all know it’s a critical factor but are probably frightened of the consequences of getting it wrong. As a result of this fearfulness, we often play ‘safe’, whatever we think that is.

It’s a subject that has been endlessly debated, tested and analysed and there is a wealth of theory available.  In this blog, I’m going to take a look at four different approaches and how they can be combined to simplify prices and at the same time increase average sales value.

Aardvark Marketing Consultants Ltd | The power of three in stories

 

 

 

 

 

 

Power of Three

The human brain appears to naturally break up complex concepts into three parts.  This is reinforced in our experience of the world from childhood where we encounter numerous examples of ‘threes’.  Fairy story examples include Goldilocks and the Three Bears, Three Little Pigs and the Three Billy Goats Gruff. In Sport we often award Gold, Silver and Bronze medals. Religions such as Christianity, Judaism and Buddhism. Three Primary colours, Neapolitan ice cream; Three quotes in purchasing, the list goes on.

Threes work by simplifying choices; most of us like to have some choice, but too much can be confusing.  Other pricing research suggests that when potential customers are unsure or confused, they are more likely to default to the lowest price option, or not purchase at all.  Restaurant menus are often grouped into Starters, Mains and Deserts; Supermarket food ranges offer ‘good’, ‘better’ and ‘best’.

Aardvark Marketing Consultants | price discounting

 

 

 

2. Price Anchoring

Price Anchoring is the practice of establishing a price point which customers can refer to when making decisions.  Effectively, it seeks to fix in customers’ minds a “normal” price against which customers can judge the relative value of other options, savings, discounts, promotions etc.

For example, in a retail environment (real or virtual), when discounts or sale prices are offered, the ‘original’ price is always shown.  We subconsciously then accept this is the normal, fair price and focus our attention on the saving rather than the absolute value to us of the item at the discounted cost.

It works for two main reasons.  Firstly, outside of pure commodity markets (and even in some of them), people use comparisons or benchmarks to assess the value of products.  Secondly, our collective learned behaviour is to find the best reward for the least money or effort.  Price anchoring with a high-priced item or original price, makes the medium-priced product, or reduced price seem much better value.

Price anchoring can also work ‘upwards’, although this is less commonly used.  If a relatively small additional spend brings apparently many more benefits, the higher priced item looks relatively good value.

Aardvark Marketing Consultants Ltd | Pricing for profit

 

 

 

 

 

3. Bandwagoning

Sometimes, even when both of these techniques are applied, it is still hard for the customer to choose.  Perhaps they like more than one option, or don’t feel sufficiently expert.  Whatever, the reason, the potential customer is not sure which product or service would be ‘best’ for them at that moment.  Again, this can lead to the potential customer deciding not to buy for fear of making the ‘wrong’ choice.

Labelling an option as “most popular”, “best value” or “Chef’s recommendation” reduces anxiety and perceived risk.  It makes us feel like we’re doing something lots of other people have done before or is advised by someone who knows more about it than us.  It’s the same reason people look at star ratings and reviews on Google, Amazon or Trip Advisor.  We may not know any of the reviewers, but if there are enough of them or their comments address a particular concern we have, or demonstrate similar values to us, we feel reassured.

4. Avoidance of extremes

A further fine tuning and combination of these theories is to allow customers to avoid extremes.  Most people like to avoid standing out from the crowd (especially if they don’t feel like they are an expert) and so will naturally favour more ‘middle of the road’ options.  Coffee shops sell mainly ‘medium’ (or whatever they call them) sized drinks, many people choose the middle-priced quote.

Aardvark Marketing Consultants Ltd | Increase average sale

 

 

 

 

 

Bringing it all together

All of these ideas can be combined in price communication:

  • Promote only three options with different price points. High medium and low, but close enough in price and features for the customer to easily make a comparison – “what more / less do I get for the extra / saving?”
  • Don’t expect to sell a lot of the high-priced or low-priced option, so be confident that the middle option delivers the turnover and profitability required
  • Add a ‘bandwagon’ label for all three that makes them feel good about their choice
  • Make the middle option stand out – bigger, a different colour, font, put a border round it, so the customer’s eye is drawn back to it as well as their rational brain

You can read more Aardvark Marketing tips for setting a pricing strategy here .

To discuss pricing or communication or any other marketing issue affecting your business, please call us on 0121 222 5743, send us an email or explore the rest of our website.

Are you too cheap?

Are you too cheap?

Are you struggling to find the right price for your products or services? Are you worried that you will lose sales if you raise your prices?

Pricing is crucial to building a stable and profitable business. It is all too easy to begin competing solely on price, and find yourself working really hard for very little profit.

With the right marketing, you will be able to create the right message to send to the right customer. Customers who are prepared to pay a good price for what you are offering. Maybe you offer excellent customer service, but if you don’t tell your customers this then they won’t know.

If you need help working out your pricing, watch the video below. Or if you would like us to help you, why not give us a call on 0121 222 5743

Aardvark Marketing Consultants | Tipe for a strong pricing strategy

Top tips for a strong pricing strategy

Top tips for a strong pricing strategy

Pricing strategy is undoubtedly the Cinderella of the marketing toolkit. Whilst managers get excited about developing new products or services, and everyone in the company has a view about promotions and new advertising, no-one but your accountant will get out of bed to talk about pricing.

Yet it is an integral part of how your brand, products and services are perceived by customers. We judge a product by its price tag without conscious thought, as though it’s been hard wired into our brains at birth. Take the example of supermarket own label products, where a 3-product approach introduced initially by Tesco has been much imitated by the rest. A Tesco Finest biscuit is the one you’d put in front of your mother in law for Sunday tea, the everyday one is OK for weekday consumption but for feeding hungry hordes of kids after school we’re quite happy to reach for the Value packet. The look, feel and taste of the product matches our expectations because the price tells us everything we need to know about the quality.
As many businesses are being hit by the weakness of the pound, it’s tempting to ask customers to pay more for the same, or even, as in the example of Toblerone and many other of our favourite chocolate brands, pay more for a smaller size product. Because pricing has strategic implications for our business, we need to give this some thought and proceed with care when changing prices.

So, what are the options? Firstly, there isn’t always a direct correlation between price and cost. In the luxury world of designer fashion, the price of producing the goods bears no resemblance to the price ticket. In fact, what makes luxury brands so desirable is the scarcity of supply and their exclusive nature. Secondly, at the other end of the scale, you can opt out of considering price at all and use a simple cost plus margin formula which used to the staple model for a sensible business plan. You can tweak this slightly by looking at critical price points for specific routes to market, for example, suppliers to Poundland produce different sizes to those sold through other retailers.

If you’re not in either of those camps, you need to look at what your competition is doing because price and perceived value are so closely linked in the mind of the customer. If a customer cannot perceive any difference between your product and a competitor they will revert to buying solely on price. Your product is a commodity in their eyes. Sadly, this often leads to repeated discounting and sometimes and a ’race to the bottom’ between companies desperate to keep their market share. No one wins. So discounting should be a last resort and used sparingly. Instead, spend some time thinking about your competitive advantage(s) in your market. Focus on offering better value for customers and differentiating your products and services. Customers will pay more if they believe the difference is worth it, so concentrate on what really makes you different. Do your reality checks by asking your customers and prospective customers what they think. Are there ways you can add value for a customer that don’t incur additional cost for your business? Are there ways that you can cut costs that wouldn’t have an impact on the customer because these features are not valued. Are there more efficient ways to deliver your products or quicker and easier ways to purchase? Is it good after sales care that matters or a longer guarantee?

Whatever you decide, changing your pricing should be infrequent if you wish to maintain the image and prestige of your brand name. Brands and companies that are consistent and transparent in their marketing strategies are trusted. Those that chop and change quickly lose that trust. It could be worthwhile in the long run taking a small hit to your margins when your costs go up if your competition are constantly changing their approach and thus confusing their customers. Dare I mention that if you’re going to market your brand as ‘strong and stable’, changing your approach will damage your reputation, perhaps irretrievably.

If you’d like a helping hand to get your prices right, contact us on 0121 222 5743

Gill