Pricing: 1 principle, 2 misunderstandings and 1 very important lesson

The pricing of products plays an important role in the creating of an image of a business. The retailer can use different strategies to establish the prices of their products or services.  At a macro level, the retailer must select from one of these three generic strategies:

  • ABOVE the market
  • AT the market
  • BELOW the market

This is a ‘first principles’ decision and this decision will:

  1. Set the boundaries of your branding execution
  2. Inform your ranging and numerous supply chain decisions
  3. Frame your (visual) merchandising executions
  4. Define your target market
  5. Influence your strategic possibilities into the future

If your store/offer is positioned in the ‘value’ space and is strategically designed to compete on price. Low(est) prices in that case is consistent with the business and brand image.

There are two common misconceptions about quality.

The notion of ‘price’ is used by the customer as a heuristic (shortcut) for quality. Buyers generally see price on a sliding scale, like this:

Prices can really be ‘too good to be true’.

Pricing scale.PNG
Customers don’t buy on price, but on value.

Customers equate value and quality and perceptions are formed accordingly. Few people consistently buy the cheapest of everything; but rather want to spend the least amount of money for the acceptable level of quality.

Given the above, the lesson for all that discounting is a strategy of LAST resort, not first.

Discounting should only be used if you have failed to convince the customer of your value proposition. (Of course your competitors set the base line about value and it is not easy to sell the same thing at a higher price when it has become commoditised. The challenge is to find a differentiator customers are prepared to pay for.)