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.