Make Sure the Price is Right

Marketers like to think that the benefits delivered by their products or services will stand up as adequate justification for price. I, too, subscribe to that belief; a product that offers great value in terms of benefits to the buyer should never have to apologize for price. But, the reality is that many consumers are price conscious, and they will do what is best for their financial situation. Brand loyalty could be vulnerable in this situation. Buyers might be willing to accept a trade-off of slightly less quality or performance in return for spending less money.

Price Sensitivity is High
While indicators in the financial markets suggest that good times are back on Wall Street, there is less optimism that the same is happening on Main Street. According to a recent consumer survey done by Parago, price is a major concern when shopping for products. Among the findings of the survey were:

  • 42% of people surveyed said they have less purchasing power this year compared to 2012
  • 74% indicated they are more sensitive to price this year
  • 80% said they look for deals including rebates, deals, and lowest prices (69% last year)

In summary, price is a big issue, so much so that 81% said they would travel 5-10 minutes of their way to get a $10 rebate on a $50 purchase.

How to Make Sure Price is Right
Findings from the Parago Shopper Behavior Survey would seem to suggest that price should take on greater prominence in marketing a product or service. Resist the temptation to chuck other strategies in order to adopt a price-friendly position. Price, like other marketing decisions, must be made with regard to the customer segment being served. Most businesses have different groups of customers in terms of their relationship state. Some customers are devoted and very loyal; brand switching is not an option to them. Other customers either buy infrequently or simply are deal prone- price is a more important criterion in their decision-making process.

If we simplify the customer base to two groups, more loyal and less loyal, we can begin to differentiate pricing strategy to appeal to each segment:

  • More Loyal Customers – This segment may be loyal to your brand, but they still are likely paying attention to price. Although their loyalty means they are not necessarily going to drop you for a competitor when the first attractive deal comes along, but they may opt to curtail their purchases. Buying less frequently or in smaller quantities could be their way of compromising between their affinity for your brand and affinity for the money in their wallet. Reward loyal customers by giving them incentives for buying. If you have a loyalty program in which customers accrue points for purchases, offer special days or times when double points can be earned. Regardless of the tactic used, the aim is to convey appreciation for their loyalty and encourage them to  buy.
  • Less Loyal Customers – The purchase motivations of this segment are pretty clear- price matters. For this segment, creating brand preference via price will be crucial. Rather than running blanket price-based promotions that target a mass audience, consider segmenting your database to identify buyers based on recency and frequency of purchase. Look for customers who have “fallen away,” not having made a purchase for the last six months, for example. I recall an instance in which this tactic worked on me very effectively. I received a postcard from Papa John’s saying something to the effect of “We’ve missed you- you have not ordered in a while.” The message included a discount; I cannot remember the exact amount of discount but it does not matter- obviously it worked because I ordered  that night!

Feel Their Pain
The biggest mistake that can be made when it comes to pricing is being oblivious or indifferent toward your customers’ concerns about price. Yes, your product may have exceptional value, but if consumers feel their money may be better spent even if having to accept slightly less value from a competing offering, they will do it. When the recession of 2008 hit with full force, marketers across many different industries responded adeptly by rolling out value priced offerings of their products. The message was clear: “We feel your pain.” Such a move freed customers from having to make choices about whether to buy or not buy because of price- they now had options while being able to remain brand loyal.

Three-fourths of all shoppers are more sensitive to price today not because it is a fun sport- they are worried about how to best stretch their dollars. Feel their pain and be there for them by segmenting pricing strategies to appeal to customers across the relationship continuum.

Marketing Profs – Consumer Price Sensitivity and Deal Seeking Up in 2013

A Marketing Lesson from Roy Halladay’s Perfect Game

Today’s teachable moment in marketing comes from the Major League Baseball. Specifically, the lesson can be found in ticket sales. The Florida Marlins, whose average attendance ranks 28th out of 30 MLB teams this season, made news when it sold more than 3,000 tickets in a few hours earlier this week for a game against the Philadelphia Phillies. Why is this accomplishment noteworthy? The game was played last week, the Saturday before the tickets were sold on Tuesday. The Phillies beat the Marlins 1-0 that day, and Phillies pitcher Roy Halladay became the 20th pitcher in MLB history to throw a perfect game. The Marlins offered unsold tickets at face value and will continue sales until the end of the season. Ticket prices range from $12-$300, with most tickets selling for less than $25, according to an Associated Press story.

Some people have questioned the ethics of profiting from an opposing team’s accomplishments and that this move does nothing to help the Marlins’ image in south Florida. I will leave that for others to decide. What I find interesting in this story is that it reminds us that consumers’ value judgments may not always seem rational. After all, would we pay for a haircut we never got or for legal consultation but never visited a lawyer? The difference in the case of the perfect game baseball tickets is that there is a great deal of emotion and passion connected with consuming sports. The tickets were bought not for any functional value- there is none because the game has been played already. It is the intangible value of holding a ticket for an event that has occurred only 20 times in more than 100 years of professional baseball. It is a piece of history that one can hold onto and say “I remember this happening” (they can’t honestly say “I was there,” now can they?).

The takeaway from the Florida Marlins post-game marketing of Roy Halladay’s perfect game is this: you must understand what customers value from their relationship with your brand. For them, what they receive from you is not a product or service- it is what your product or service does to make them feel better about themselves or improve their quality of life in some way. It is an often-stated slogan: People buy benefits, not products. True, but extend the means-end chain further to ask “what is the significance of the benefits to our customers’ lives?” Exploring that question can have an impact on what you sell, how you position it, and who you target.

Reclaiming Customer Loyalty

One of the most significant effects of the recession (which may be over according to economists but many households are not convinced) has been consumers’ propensity to trade down to lower priced brands. In good economic times, many marketers strived to deliver value through enhanced product features or symbolic benefits of their brands. The strategy was to deliver value that customers would be willing to pay price premiums to attain. When the economy worsened, consumers tended to become more conservative in their buying behavior, cutting back where they could and buying lower priced alternatives to meet their needs.

The behaviors described above are more than gut feelings about what consumers have been doing. A recent study by comScore found that consumers indeed traded down to lower priced brands during the recession. The study tracked consumer behavior in terms of buying the brand they wanted most for a variety of consumer packaged goods categories and housewares. All categories saw a decline in the percentage of consumers who had bought the brands they wanted most. For lower priced products that may have few perceived differences between brands, the effects of the recession on trading down were not as great. For example, 36% of consumers reported they bought the brand of paper towels they wanted most in 2010, only 1 point lower than 2008. But, for other products that have greater perceived differences between alternatives, more consumers decided to forgo the brand they wanted most for lower priced brands. For toothpaste, purchase of preferred brand dropped 10 points from 2008-2010 (67% to 57%), shampoo dropped 13 points (65% to 52%), and jeans dropped 15 points (54% to 39%). More information on the comScore study can be obtained by clicking here.

A great deal of uncertainty exists about whether the shift in consumer behavior during the recession is temporary or reflects a permanent shift toward value being defined more by low price than product benefits. Many experts believe the trading down behavior may be a realignment of consumers’ priorities. If that is the case, marketers must redefine their unique selling proposition. Is price the only point of difference that will matter to consumers? Probably not, but what brand traits will attract customers and more importantly, drive brand loyalty?

A return to branding basics seems to be in order. Trust is the foundation of relationships between buyers and sellers; it is no different than a personal relationship. Conducting business in a way that shows concern for customers, care for the community, and commitment to the well being of stakeholder groups are ways to develop and solidify trust. For example, social responsibility appears to be more than a fad; it is a shift in mindset among many people that businesses should be good stewards of the resources it uses and encourage consumers to do the same. Going forward, brand loyalty is more likely to be secured by demonstrating genuine concern for customers than dazzling them with product features or an aspirational image.

Marketing Priorities for 2010: Part 1 of 3

As 2009 goes down in the books and we usher in 2010, I reflected on what I see as marketers’ priorities should be in the coming year. I will share three focal points in the next three posts. I begin with the priority that should have been a priority in 2009, should be in 2010, and frankly should be a top priority as long as marketing is practiced.

Add Value for Customers

I know, this directive seems like a given. Marketers have been obsessed with the value proposition for decades. The challenge, and therefore the priority, resides in developing an understanding of how consumers define value today. An oversimplification of value is price of the product or service. A more balanced view of value is benefits delivered for the price paid. In the boom years leading up to the recession of 2008, marketers were able to shift the definition of value in a way that consumers equated brand image as well added product benefits as justification for premium pricing (i.e., expensive but worth it).

The effects of the recession on personal incomes and household spending patterns has significantly reshaped many consumers’ views on consumption and how value is assigned to products and services. Focusing on price as the driver of value is a mistake even in a weak economy. Relevance of brands to consumers is still important. A sensitivity to consumers’ financial state is not exhibited merely by a low price. One reason Hyundai won accolades for its Hyundai Assurance program is that it demonstrated the company understood consumers felt vulnerable because of the recession. Hyundai was in effect saying “we understand.”

The quest to add value for customers should never end. If it does, we no longer need marketing! What changes periodically is how consumers conceptualize value. Now more than ever, marketers must be in tune with what their customers are thinking and feeling. It is this focus on customers that will enable marketers to deliver greater value in 2010.

Value Does Not Always Have to Equal Low Price

Value- it’s the mantra marketers chant to persuade buyers to select their offerings. We like to assume we have a good understanding of what customers expect when it comes to value. A tendency exists to equate value with low price. The judgment that a product provides “good value for the money” even suggests that our brand does not have to be the lowest priced option to be perceived as a good value. But, price too often is the measuring stick used to make determinations of value. Even in difficult economic times, price need not be the lone source of customer value.

Value judgments are based on a comparison of benefits offered by a product or service with the sacrifices required to acquire it. Managing customer value from this perspective suggests we have but two options to enhance value: increase benefits or decrease sacrifices. Again, the tendency is to decrease sacrifices (i.e., lower price) because who wouldn’t want to pay a low price? That assumption overlooks that value can come from reducing other sacrifices (e.g., fast delivery or favorable credit terms) or strengthening benefits offered.

An example of delivering value via benefits comes from Kraft. It is charging 99 cents for its iFood Assistant iPhone application. Giving the app away could be a way to encourage more users, but Kraft believes the value the app delivers as a resource for consumers via a mobile platform justifies charging a nominal price. Value is correlated with relevance. A brand that is relevant to consumers delivers value. Before succumbing to the temptation of creating value through low price, consider all other sources for enhancing value so that it is not created at the expense of profits.