Why is developing a pricing strategy within a marketing plan so difficult? On the surface this would seem like one of the easiest elements of the marketing mix. There are not the development costs of the product element, there are not the relationship requirements of the distribution element, and there are not the persuasive and creative elements of the promotional element. However, human brains are lazy and price is often the easiest shortcut in evaluating the entire product or service.
According to the American Marketing Association, price is the “formal ratio that indicates the quantities of money goods or services needed to acquire a given quantity of goods or services.”
However, we all realize that the perceptual element of pricing makes it much more powerful than this definition suggests. Research indicates that even the most trained sommelier will mistake a lesser wine for a high-end vintage wine if the price tags are swapped. This price heuristic is how we can quickly make judgements about everything from a can of paint to a haircut. Without these short-cuts like price, our brains would need to cognitively engage in all of the thousands of decisions we make every day. Just think how long a trip to the grocery store would take if we weren’t making quick and habitual decisions based on branding, packaging, and price.
When establishing a pricing strategy, like all elements of the marketing mix, a marketer must focus on the target market and defined objectives. However, understanding how the target feels about price is often easier said than done. Observational research or experiments may be more effective than survey data or focus groups in understanding this behavior as consumers often don’t understand or are unable to articulate how they react to different price levels.
The marketer must also focus on the defined objectives for the product or service. The profit, revenue, market share, and volume objectives are obviously going to have an impact on the level and strategy of pricing used.
In this short course video I describe and provide examples for the following pricing strategies:
- Prestige Pricing
- Odd-Even Pricing
- Target Pricing
- Bundle Pricing
- Yield Management Pricing
- Customary Pricing
- Loss-Leader Pricing
The odd-even pricing strategy is one of the best examples of the perceptual power of price. We are all aware that $9.99 is truly $10.00, but our lazy brains unconsciously convince us otherwise. Even in this age of completely dynamic pricing models and electronic transactions, I can’t see this strategy disappearing anytime soon. I have even adopted this model for my own business (Prenzlow Photography).
The true perceptual power of price should never be overlooked when developing a marketing plan for any product or service. However, extra care should be given when that marketing offer is an intangible service.
NHCC Course Schedule Sign-Up for a Business Course at North Hennepin Community College Today.