Posted 2/4/2013 12:00 am
Updated 10 months ago
How much is it? At what point in a possible transaction do consumers ask this question or look at the product tag for the answer? Is it the first thing on their minds? Or perhaps it’s simply a variable, an element in the mix of considerations weighing on whether or not a consumer decides to make a purchase. And what part does the promotion of price play in the give and take between buyers and sellers?
Consider the following: Apart from how a brand “makes me feel about myself,” price is the initial signal to a consumer as to the value of a product. Of course, price has to cover the unit cost of the product, which includes production, distribution, marketing and desired profit. But price is also a singular way to communicate to consumers relative quality vis-a-vis competitive goods and services.
More than just a margin over cost to ensure a profit, pricing is a language that speaks to consumers, making them more aware of the brand and ultimately telling them it’s time to take action.
Here’s how it works: Price is set by the marketplace. The marketplace is populated by competitors. And marketers decide on a pricing strategy that either prices their product equal to competitors, higher than competitors or lower than competitors. Students of business know this respectively as competitive pricing (on par with competitors), skimming pricing (higher) or penetration pricing (lower). All three pricing strategies say something about the perceived quality of the product — how the marketer wants the consumer to value the brand — as well as saying something about the store in which the product or brand can be found.
Pricing strategy can also be done in cycles. The cycle should be familiar, particularly in the department store business model. Through cyclical promotional pricing efforts, retailers can not only make customers more aware of a category of merchandise — shoes, dresses, accessories and the like — and compel them to make an immediate buying decision, they can also position the store as a leader in a particular brand and use a pricing strategy from mark-up to mark-down to promote itself as the store of choice for that brand.
Is the retailer saying it is a high-end, luxury store with pricing above that of competitors, thus “skimming the market?” Or is it attempting to grab greater market share by discounting prices, and brands, establishing itself as a low-price leader attempting greater market penetration with prices lower than competitors? Either way, price says who retailers are and to whom they are speaking.
Drawing periodic attention to the store and its brands is part of the selling cycle as well. Marketers do this by employing limited-time offers through coupons, discounts, rebates and rewards, all strategies used from time to time to drive down the price and spur the customer to act. Seasonal sales such as the upcoming Valentine’s season are examples of limited-time offers.
Now, all of this seems logical, of course — using price to connote quality and introduce a new brand or a brand’s latest style or “new and improved” version. Product 2.0. Then, after a time, marking down the price in order to move the product off the shelves, the rack or out of the bins. We consumers expect it, and we respond to it every time. It’s our particular retail dance, and we are comfortable with the timing and tempo. So it feels odd to us when marketers change the beat.
Discount stores sell at discount. Everyday low pricing is expected “every day.” Department stores move it in, mark it up and then mark it down. So be it. All in all, price is the arbiter. Price is the signal that tells consumers what to expect. And price, coupled with the attributes of the brand (one of which is price), lets us know if it fits who we are and what we desire. I prefer to call it “relationship pricing.” Establishing a relationship among the store, the product, the price and the customer, all of which should be in sync with a “what’s-in-it-for-me” statement. It all communicates with the consumer, with price leading the conversation and speaking a language all its own.
Craig Douglass is a Little Rock advertising agency owner and marketing and research consultant. He is president of Craig Douglass Communications Inc.