Show customers value, they’ll pay for the product
Jun 02 2014
Numerous researches 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 name, features and benefits, there is little evidence to suggest that price equals quality. If I were to ask you to think about a smartphone, a price might jump into your mind. If then I say, “It’s an Apple, with several new features and better camera, etc.,” another price, probably higher than the first, would come to 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, if not all, cases.
Have you ever seen the ad pitches in TV Shoppe? One such commercial goes like this: The presenter spends 10 minutes showing you one or two knives that do several things. Then he announces the price, say around Rs 879 or Rs 939. 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 939, you bought two knives for Rs 939 and got seven free. What a deal! Do you see what happened? It is not the price of the knives, but how the price was presented that makes the difference.
You need to be creative when it comes to pricing options. There are broadly three pricing strategies as outlined below:
Premium pricing: Brands like Rolex, Mercedes, BMW and Apple take great pride in the fact that they never offer the lowest price in their categories. They use the principle of premium pricing to convince the customer that they will be the elite group to have these products. For example, when regular shirts are available for Rs 1,000, a typical premium branded shirt is priced at Rs 4,000 and above. Cartier watches start from Rs 1,30,000. 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, a Mumbai-based chocolate commands a premium pricing in most of the categories they are present.
Perceived value pricing: How much value will the customer 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. Remember a hard rule when doing this strategy: every feature of your product or service must have a corresponding benefit or the strategy fails. A feature is what a product has, a benefit is what a product does or customer perceives. Features alone do not translate into value to the consumer. A benefit is a betterment derived from using the product. The more benefits to the consumer the easier to justify the price and ensure that sale.
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 LED lights may cost more but use less energy and last longer. 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 you carry. Put a price on each benefit if necessary. Price is only a problem if you make it to be. 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. Show them the value and they always pay.
(The writer is CEO and managing director of CustomerLab Solutions)