Price Is Marketing's MVP Moment
I’m all over price lately and this post got a lot of reaction, so I’m going to share it here as well this morning in the hopes that y’all can help spur me to the next level in my pricing thinking.
I’m going to Vegas in August to talk pricing at the Ticket Summit conference!
I’m leading a panel on pricing and it seems that this is the topic that never gets old for everyone. So let me know if you are going to be in Vegas in mid-August for Ticket Summit or the ALSD. The conferences are going on at the same time, sharing a trade show, and are both in the Aria!
Amazing! A real live trip!
So far this year I’ve written about pricing twice:
Once I talked about some of the key ideas about pricing correctly, pricing research, and not discounting! (FYI, not discounting is Dave’s greatest hit!)
Using pricing as an indicator of your marketing skill.
Now that I’ve given a presentation on pricing that had over 1000 people download the notes and slides. And, I’m prepping to do a panel on pricing for the post-pandemic world of tickets, I figure now is as good a time as any to give you some ideas on pricing to carry you through the end of the pandemic, if you are lucky enough to be able to say you’ve turned the corner, and beyond.
Let’s hit five pricing ideas this morning:
Pricing is marketing’s MVP moment:
The moment you set the price is maybe the most important marketing decision you are going to make because it is the point where you capture some of the value you’ve been creating for your market.
In most businesses, we see that folks tend to underprice.
In a few places that I work, I see businesses that overprice significantly and discount when their products aren’t moving, but that is a different discussion that we will have in a moment.
The first key idea you need to hold in your mind is that the point where you price your product or service is the moment when all of the marketing work you’ve been doing really pays off.
You either do all of the basics well and price in a way that captures a lot of value or you don’t and you fail.
There isn’t any middle ground here.
Setting the right price requires research:
I’m a convert to the power of constantly being in the market researching. I was always a big fan of ethnography, but I’ve really embraced focus groups and quantitative research over the last few years.
This is important because I realized that setting a good price requires a lot of research.
In previous posts, I talked about the different ways to research price like:
The Van Westendorp Survey
But the key for today is to keep in mind that any one price point or piece of feedback is only useful in that one situation.
Doing pricing well means that you need huge pots of pricing information, quantitative data.
Lots and lots of data because when it comes to pricing, small samples definitely skew your research because people will feel like they can game the system and get a better deal for themselves.
When you open things up to huge pools of people, you get better information.
So the second thing to remember is do research, lots of it.
Brand Building helps you maintain price integrity:
I’d love to scream this from the rooftops, but if you have built a good brand you should be trading on that brand to protect your price.
The research is pretty clear on brand building and its ability to help you maintain price integrity.
I looked for a free research study I could share, but I couldn’t find a free one…so anecdotal evidence it is this morning:
When was the last time you went to the Apple Store and got a discount?
If you want a Tesla, the price is the price.
I’ve never seen a sales on a Rolex.
Here is the thing, building a brand is about distinctiveness if you are a follower of Professor Byron Sharp. And, brand building is about positioning and differentiation if you are a follower of Professor Mark Ritson.
On this I think they agree, building up your brand means that people pick you…not because of the price but because it is you.
Keep that in mind, if you are unique and stand out in the market, you can command your price. That’s lesson three.
Demand isn’t created by price. It is created by value:
It is strange that I find myself in this situation of being in Colin Lewis’s word, “The Pricing Guy”. Because I’d say that I mostly think I understand value and how to create that for folks.
But in this way, value and pricing come together.
Because in many instances, folks set their prices in ways that they talk about as Penetration Pricing, Loss Leader Pricing, or some other form of underpricing that teaches their market that they should be expecting an artificially low price and that never really conveys the value of what you are doing.
And, I get the printer and ink example…so I’m cool.
Price may drive sales, but it often just eats up sales that you might have made otherwise. Or, it encourages folks that were going to buy to wait longer to see if there is a better deal.
Remember the conversation we had above about research, this is another spot where price research will help you. It will tell you when people buy so that you can have a strategy that uses incentives to drive behavior changes.
As an example, let’s say folks buy whatever you sell at the last minute, you can offer an incentive to speed up the purchase like:
Raising the price at a certain time.
Adding something valuable to the purchase if they buy earlier.
Opening up special access to another event or product for people that buy early.
We don’t have limits here. We just have to recognize that demand is generated by value, not price. Price is only a reflection of the perceived value.
Number four, keep in mind that perception drives demand not your price.
I’ll admit that I bought some Starbucks House Blend with turmeric in it at Harris Teeter last week and it was “buy one, get one free.”
I also totally used discount codes over the year like Old Navy, J Crew, and others.
The flip side of this is that when I go to Old Navy, I’m often price shopping. I never really pay full price at J Crew. And, there are a ton of other places where I will shop for the lowest price.
Flip that with some of the examples I gave above like Apple, Tesla, or Mont Blanc.
I’d have always put Smythson in there, but they’ve dove into the discount pool and it breaks my heart.
If you understand the following ideas, you’ll recognize where my dislike of pricing comes into play:
Brand Building improves price integrity
Your price is a reflection of perceived value
Pricing demands quantitative research
All of this means that you have to do your research which is the foundation of strategy, you have to go through your strategy to set yourself some goals, and you need to focus on long and short-term activities in your marketing campaigns.
The bigger issue with discounts comes down to:
Discounts destroy your brand.
Discounts destroy your profit.
Discounts destroy your customer loyalty.
The fastest way to turn your brand into a commodity is with price promotions. If you’ve had a chance to read Martin Lindstrom’s book, Buy-Ology, you’d know that when you open the door to discounting that neurologically you are a “discount brand” for around a decade.
That’s large-scale brand destruction.
Discounts might feel like Penetration Pricing or a way to get cheap sales. I’d say they are more like Predatory Pricing meaning they are predacious to your profits. I’ve looked at this number from three or four different ways and here is the truth of how much profit discounting steals from you:
In retail and low-margin businesses, you often see each 1% in the price you lose to discounting account for a 40% loss in profits.
In higher-margin business, it is easy to see a 1% in price decrease from discounting lead to around 10-12% loss in profit.
In my work, I’ve figured it out to be around 25% loss in profit for every 1% loss in profit.
You pick any of those numbers and tell me you are cool throwing away whatever percent and just send it to me. I’m happy to give you my address.
It is bad no matter how you slice it.
Finally, discounting destroys customer loyalty.
First, penetration pricing is typically a way to talk about discounting or underpricing from the start. It is all the same because it teaches people that you don’t value what you are selling, that they should expect an artificially low price, and that the purchase likely isn’t an essential thing.
Second, discounts are similar with penetration pricing in they may attract the kind of audience that you don’t want to attract. Meaning an audience that is just bargain hunting, looking for discounts, or not willing to pay for value.
Again, harmful to the brand.
Third, discounts teach people to wait for a deal or the next drop in price. This causes people to not just buy from you, but to look at other options, to wait, or to just use your product or service as a last resort.
All of them bad results.
The lesson should be, don’t discount.
In general, pricing is an art and a science. If I can get one point across in my ongoing price war, I’d tell you to spend time getting your price right from the jump because it is the MVP moment of marketing.
But…you already know that!
See you next week.