Most business owners and sales heads I come across have a problem regarding the P of marketing fundamentals -- price. Price has been the nemesis of business since the first monetary transaction. The consumer trying to get it as low as possible while the business owner tries to keep it as high as the market will allow. So, what does price really mean to the average customer?

Studies have shown that when price is the only information the customer has, different price levels are associated with different quality levels. However, when other information is introduced, such as brand names, features and benefits, there is little evidence to suggest that price equals quality. If I were to ask you to think about a CD player, a price might jump into your mind. The if I mention that it is Sony, with multiple CD changer and graphic equaliser among other things, another price, probably higher than the first, would jump into your mind. Price is a matter of perception. We know that in most cases quality will cost more. We know if we want a good product, we will have to pay a higher price in most cases.

Have you ever seen those TV shop commercials for knives and such household items on TV? One such commercial goes like this: The presenter spends 20 minutes of the half hour showing you one or two knives that do several things. Then he announces the price, say around Rs 459 or Rs 739. Seems high, ...but wait. If you order right now he'll throw in the three vegetable knives, the corkscrew blade, the melon ball maker, the juicer knife, the grapefruit knife, all for free. Instead of 10 to 12 knives for your Rs 739, you bought two knives for Rs 739 and got seven free. What a deal! It is not the price of the knives but how the price was presented that makes the difference.

You need to be very creative when it comes to pricing options. There are broadly three pricing strategies: premium pricing, perceived value pricing and value-in-use pricing.

Premium pricing: Be it Mercedes or Omega or Cartier, all brands take great pride in the fact that their prices are never lowest in the markets. They use the principle of premium pricing to convince the customer that they will be in the elite to have these products. For example, when regular shirts are available at Rs 1,200 range, a typical Lacoste shirt is priced at Rs 1,800 and above. Cartier watches start from Rs 50,000. Of course, it might be difficult for a small business firm to command a premium pricing strategy; it is not unusual, at least in certain categories. For instance, the Delhi-based Biotique range of cosmetics and shampoos command a premium pricing in most of the categories they are present. For instance, their 100 gm soap will cost you around Rs 100.

Perceived value pricing: How much value will customers expect to receive if they purchase your product or service? When the customer looks at all the benefits of buying the product there is the perception that the price asked is a fair trade for the value. This is the best strategy for consumer sales. While using this strategy, there is one hard and fast rule: Every feature of your product or service must have a corresponding benefit or the strategy fails. A feature is what a product has and a benefit is what a product does. Features alone do not translate into value to the consumer. A benefit is a betterment derived from using or owning the product. The more benefits to the consumer the easier to justify the price and make the purchase. One brand of deodorant offered great perceived value to the consumer through its 3-in-1 promise of deodorant, perfume and skin softener even though it was priced much higher than regular deo brands.

Value-in-use pricing: In this strategy, the customer has to look at the savings of the product over the long haul. The computer with the word processor is more costly than the typewriter. But, in the long haul, the secretary will be more productive and the work will look more professional. Energy saving light bulbs may cost more but use less energy and last longer. As another example, remember when radial tyres were introduced? These tyres were much higher priced than regular tyres and faced initial consumer resistance. But when they understood the benefits of using a radial tyre, they immediately changed their minds. This strategy is best used in business-to-business situations. Consumers often want the quick fix for a low price and will be reluctant to look at the savings over time.

If you get sweaty palms and dry mouth when the time comes to give the price to your prospect, you have not convinced yourself of the value of your product or service. Until you are genuinely convinced that the price is a fair value for the rupees asked, you would have a problem moving your product. Sit down and make a list of features and benefits for each product or product line you carry. Put a price on each benefit if necessary.

Price is only a problem if you make it one. We make our purchasing decisions based on emotions and use logic to justify our emotions. That's why the benefits are so important. Make the customers’ life easier, cheaper, longer or less stressful and you'll have a sale. zz

The writer is CEO and MD of CustomerLab Solutions