No matter what industry your work in, there are always better ways to frame or position your pricing. It could also mean the difference between a successful and an unsuccessful product, winning or losing the business or profit and loss.
In this episode of ‘Ten Things’, I take a look at ten ways you can better frame your pricing, including:
Don’t over-complicate your pricing
Don’t talk about costs
Talk about value instead
Know your customer and your competition
Try and link your pricing to a customer value metric
Don’t condition your customers
Consider selling a good as a service
Understand behavioural economics, and
How to negotiate with a Pitbull
I have no doubt there is something in here for everyone, regardless of what business or industry you are in.
Last month, I shared some of my favourite pricing cartoons with Marketing mag readers. The ongoing popularity of cartoons surprises me, given the decline in the medium that for many years they’ve called home: the newspapers.
With that in mind, here are another ten great pricing cartoons.
This first cartoon illustrates one of two things (possibly both). Firstly, the advantage of have two pricing levers (the tree and the axe) that come from using non-linear/two-part pricing models, or secondly the advantage of selling paired products (like razors and blades, iPods and iTunes).
There are many risks associated with bundling products and services. The risk that is illustrated here is creating a bundle with a product or service that customers don’t really want.
Computers often get bundled with software (or is it the other way around?), and this gets taken to the illogical next step in this cartoon, with the caption reading “I haven’t the slightest idea who he is. He came bundled with the software”.
How not to price a new product
I am still amazed how often I see this happen… and how late it happens in the new product development process. Companies or people design and build fantastic products and either leave the pricing until the last moment, or pull a price out of thin air, like we see here.
Pricing should be part of the new product development process. It should be a forethought, not an afterthought.
Bati the customer
As I mentioned last month, cartoons can be a great way to get a serious message across using humour. This was exactly the thinking in the cartoon, which appeared in an ACCC publication a number of years ago. This cartoon illustrates what is known as bait advertising: in this case, advertising actual bait for sale, when you don’t have any or do not intend to sell it… you want to sell something a little bit more expensive… like fishing boats.
This cartoon is taken from the same publication, and points out that it’s illegal to collude with your competitors to set the price of a product or service.
Here are two cartoons that share a common theme: the pricing of pharmaceuticals. In the first cartoon, we see a patient hoping she’s coming down with a ailment she can afford the medicine for. Maybe she’s hoping for a ‘cheap’ disease, like the patient in the second cartoon, for which she can take a cheap, generic medicine.
Empty the customers pockets
There never seems to be any shortage of cartoons lampooning the oil companies and their pricing. This is the first of two such cartoons where the driver filling up his car is also filling up the profits of the oil company.
The second, captionless cartoon likens the oil companies to Australia’s most famous (or infamous) villain, Ned Kelly, bearing a striking resemblance to a petrol pump.
Speaks for itself, doesn’t it?
This penultimate cartoon really doesn’t need much of an introduction. It’s a cryptic criticism of the pricing model commonly used in a wide variety of professional services industries, most notably in this cartoon, the legal profession.
The customer’s revenge
The final cartoon is from the early 1990s, and prior to the real commericalisation of the internet. The hand coming through the computer terminal is that of an airline passenger who has just been told by the reservations agent that the cheap airfare they have just purchased now has even more restrictive terms and conditions.
The timelessness of this cartoon is that this situation still happens today, perhaps even more so. Passengers may not be ringing call centers to book their flights, they do that themselves online, but they can still vent their spleen via their computers, their tablets and their smart phone (via social media) if they’re not happy with anything.
Cartoons are great. Although they are usually humorous, they often have a very serious message attached to them as well. And pricing is no exception, as you will see as I share with you ten of my favourite pricing cartoons.
It’s easier to go down than up
I don’t live in America, but if cartoon and TV shows are to be believed, kids set up lemonade stands over their summer holidays to make a bit of pocket money. In this Fox Trot cartoon, we see Lemonade on sale for $500, with the vendor saying she just wants to make one sale and call it a summer.
What’s the pricing lesson here? It’s easier to drop prices if something’s not selling, than to try and increase prices if it is selling well (although this is probably not in the mind of this opportunistic little girl).
The winner’s curse
Several years ago, Don Bradman’s baggy green Australian cricket cap sold at auction for $425,000, and the Australian Financial Review ran this cartoon. This is a slightly cryptic reference to what often happens in auctions: the winners curse (ie. the winner pays too much for what they want).
You get what you pay for
Believe it or not, this cartoon is from Malaysian Airlines’ in-flight magazine, which at the time it was published, was coming to grips with competing with a homegrown, low-cost airline by the name of Air Asia. Given where it was published, one could easily conclude it was marketing propaganda against that competitor, but another message is plain and clear: when it comes to pricing, you get what you pay for!
Price increases make customers angry
Mark Stiving in his excellent book Impact Pricing talks a lot about this. Price increases make customers angry. This cartoon is from Britain’s Daily Telegraph, and followed the annual announcement of train fare increases, of a magnitude of 9.5% in the case of Virgin Trains.
Empty your pockets please
Just as low cost airlines took off a couple of years ago in Australia, The Australian newspaper published this little gem of a cartoon. It was in response to the airlines increasingly unbundling the cost of an air ticket and starting to create what they call ‘auxiliary revenue streams’, and what passengers call ‘those ugly extra fees and charges’.
Customers do talk
In 2006, Melbourne hosted the Commonwealth Games and this cartoon appeared in The Age newspaper. The clear message here is that customers will talk to each other, and at some point, they may talk about the price they’ve paid for a product or service. Are you prepared for this? Is the reason you’re charging different prices to different customers clear and justified?
Beware of alternatives
Here’s one of two cartoons from The Wizard of Id, this one with a great message: understand value and the alternatives. Here, a customer opts for a German Shepherd sign, because it’s cheaper than the dog and (potentially) has the same effect.
Expect the ridiculous
There’s probably more humour than serious pricing message in this cartoon, from Britain’s Daily Telegraph, but maybe it is worth keeping in mind possible funny, interesting or ridiculous interpretations of your pricing or its communication strategy. (By the way, a good test of this is to run it past a 10-year-old. If they get it, it’s easy to understand). This cartoon was published just after London introduced its congestion charge.
Is this a cartoon that just doesn’t age? Why does the price of petrol (or gas) fluctuate so wildly, but the price of motor oil doesn’t? Are you being consistent in your pricing? Again, a 10-year-old child might help here.
Can you afford what you charge?
This second contribution from the Wizard of Id is perhaps my favourite pricing cartoon. “When did you decide to become a lawyer? When I realised I’d never be able to afford one.”
And the reason I like this cartoon has nothing to do with lawyers and their pricing model. The message is much more simple than that. Put yourself in your customers shoes. If you were your customer, could you afford to pay the price you’re charging?
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We all know that pricing is the forgotten P of marketing, but it cannot be neglected when prices are presented to customers. This post, and the accompanying video, explores ten ways you can better present your pricing.
10. £20 off what…?
How many times has your partner come home with a shopping bag from an up-market retailer, and when you ask “How much was that?”, he/she replies ”Don’t worry, it was 50% off”.
There is one very simple problem with this answer, which is commonly seen in advertising: it doesn’t tell you what the baseline is. What was 100% of the price, or what are you getting $50 off?
This situation is commonly referred to as the Weber-Ferschner Law: customers cannot evaluate the attractiveness of an offer unless they know what the offer is based on.
9. Do you really want half price?
Everybody loves a bargain, but why give away something without getting something in return? If you’ve got a customer who wants to pay half price, ask her which half of your product she doesn’t want.
Give discounts where discounts are due, but only where you get something in return, such as customer loyalty, larger volumes, new or repeat customers, or buyers of distressed or out-of-date inventory.
8. When is your next sale?
There are some retailers who have sales so frequently that you can set your watch by them… and I’m not just talking about the Boxing Day sales.
A couple of years ago, Business Review Weekly published a calendar for the year which showed that general retailers would most likely be discounting inventory for all but three months of the year: journalists shouldn’t really be the onesto determine when retailers will or will not have their sales.
Customers are easily conditioned to when sales will occur, and they will hold off making purchases accordingly. Are you conditioning customers to when your next sales is?
7. Don’t mention price
Several years ago, Virgin Atlantic ran some brilliant ads targeting British Airways customers. The ads talked about what BA doesn’t have (free limo transfers to and from the airport, drive-through check in, clubhouse lounge with spa treatment, etc.), concluding with the remark that “At least BA does manage to match us on one thing… price.”
This is great communication: it talks about the product Virgin has, and the competitor doesn’t, and concludes they are competitive on price… without even mentioning what that price is.
6. If you can’t show no prices, just show a few
If you can’t get away with showing no prices, then consider showing just a few prices. Why? Because customers do not know every single one of your prices. They will know a few prices: what some companies call KVIs, or ‘known value items’.
The upmarket food retailer Whole Foods Market advertises competitive prices of frequently purchased products only, without diluting the price paid (or the price perception) for other items once the customer is in the store.
5. You want me to buy cheap stuff?
Any company selling a product or service needs to understand their customers, and align their pricing strategy accordingly. One thing cosmetic companies have learned is that when it comes to putting stuff on their face, women don’t want cheap cosmetics.
That’s why you never see companies like L’Oreal or Clinique having price-based sales or using discounts. Rather, they offer bonuses and value adds. Are you cheapening your brand and your prices just because you don’t understand your customers very well?
4. Cultural sensitivities
In some parts of the world, certain numbers and colours are culturally significant and hold greater appeal to customers.
The number eight is a lucky number for the Chinese and many Asian cultures, and red is a lucky colour. Do your prices reflect cultural sensitivities?
3. If you have to ask the price…
There’s an old saying: ‘If you have to ask what the price is, you probably can’t afford it’. Luxury brands know this and rarely advertise their price, so when you see a luxury brand mentioning price, it often sends customers a confusing message. Unless of course, they are trying to reposition themselves.
2. Further alignment of pricing and the brand
John Lewis, the UK department store, has a ‘never knowingly undersold’ policy, first coined by one of the Lewis’s in the 1930s. It enables them to remain competitive with the like of Poundland, as well as Harrods and Harvey Nichols, without diluting its brand and upmarket positioning.
1. Do you give… or do you take?
The rational economic man or woman knows that two litres of milk for $4.50 plus $0.50 when paid for by credit card, is exactly the same as $5.00 with a $0.50 discount when paid for in cash.
However, the irrational economic person knows that the second offer is perceived to be better, because they are getting a discount, rather than paying a surcharge. This is why cinemas offer cheap tickets on Tuesdays when demand is low, rather than charging higher prices on Friday and Saturday nights, when demand is higher. This practice is not universal across all industries though. Airlines charge fuel surcharges for a different reason.
The benefits of better presenting your pricing are greater sales, greater revenue and profit and greater customer satisfactions. But it is a double-edge sword: get it wrong and expect the opposite.
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Ever wondered about the origins of some of today’s commonly used pricing practices? You might be surprised to learn that some of them are older than you think. That’s all the more reason for not reinventing the wheel when it comes to pricing.
Auctions, for example, date back to 500BC. Joseph, with his coat of many colours, was sold into slavery by his brothers via an auction. Auctions have stood the test of time ever since, and are used to sell thousands of fresh flowers in Holland everyday, as well as thousands of keywords on Google and other online adverting platforms.
In 1666, boatmen charged residents fleeing the Great Fire of London fares two to three times above normal to cross the Thames and reach the safety of the south bank. This is one of the earliest examples of demand-based pricing that I can find, and the practice continues to this day. On 8 Jan 2012, the New York Times ran a story on passengers paying 6 to 7 times normal rates for taxis provided by a company called Uber.com on New Years Eve.
Further, dynamic pricing was used to price grandstand seats to watch hangings at Tyburn (London). Prices started to rise and fall according to the level of interest in the execution. Again, this provides some historical context to the pricing of concert tickets by artists like The Eagles and the Rolling Stones.
Dynamic pricing is now moving wholesale into sporting events. While rugby league’s State of Origin II this year was billed as ‘dynamically priced’, it fell short of what most American Major League Baseball did this year: prices that vary according to the day of week, whether it’s a home or away game, who the opposition is, and even players selected in the team.
Ever wondered where advance purchase requirements came from? The earliest example I’ve been able to find is from 1729, when the British Museum in London started selling admission tickets in advance. Many industries, including most if not all of the travel industry (including airlines, car rentals, hotels and cruise lines) do this today!
As we all know, customers have been complaining about prices for years (…probably since 500BC). Today, customers flock to social media to vent their frustration, but a famous sketching from 1762 shows patrons storming the stage of a Covent Garden Theatre when the practice of selling tickets to the last two acts of a play at half price was abolished.
Of course, this event pales into insignificance when compared to bigger ‘riots’ that can be attributed to pricing. The origins of the French Revolution, for example, can be traced back to a rise in the price of bread.
Between 1869 and 1872, the Bon Marche department store in Paris made two groundbreaking innovations. Firstly, it started to display its wares for customers to inspect, and secondly, it introduced price tags, so no longer was the price determined by the customer’s ability to haggle.
In 1872, price tags crossed the Atlantic. They were popularised there by Aaron Montgomery Ward (widely recognised as the inventor of mail order) and Frank Woolworth (who operated a chain of discount stores with all merchandise priced at five or 10 cents).
Ward’s mail order catalogues still had one problem: customers had to wait for their purchases to arrive, usually by train. The following decade, in 1888, Thomas Adams put the chewing gum he had invented into ‘Tutti Fruitti’ gum vending machines, which started to appear in New York railway stations.
Even today, it is impossible to haggle over price with a vending machine… although attempts have been made by vending machines to haggle over price with customers. In 1999, the chairman of Coca-Cola, Douglas Ivester, told a Brazilian magazine his company was working on a temperature sensitive vending machine that would increase the price of Coke on a hot day. The idea didn’t get off the ground at the time, but there are temperature sensitive vending machines on the street of Japan today.
Between 1894 and 1910, a Hungarian immigrant to New York by the name of Joseph Leblang identified an opportunity to sell discounted tickets to Broadway shows from his cigar store on 6th Avenue and 30th street.
Receiving free tickets from Broadway agents in return for putting posters up in his store, Leblang then sent his brother around to other stores to buy as cheaply as possible the free tickets offered to other store owners. Reselling the tickets at about half price, he went to his grave a millionaire.
The Model T Ford sold for around $850 to $950 when it came out in 1909. But by 1924, the vehicles prices had fallen to $265. The same thing happens today: the world moves a lot faster these days, and product life cycles are getting shorter and shorter. Today’s premium-priced product can be tomorrow’s dirt-cheap commodity, thanks to price erosion.
In this video blog Jon Manning takes us through ten reasons pricing is now an issue as vital as ever to marketers:
The power of the consumer,
transparency of competitor pricing online,
the smartphone as a retail navigation device,
supercharged social media word of mouth,
the cost of pricing errors,
crowd-sourced pricing research,
pricing vs procurement.
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Hello, and welcome to episode eight of ‘Ten Things’ here on PricingProphets TV on YouTube.
My name is Jon Manning and I’m the founder and managing director of PricingProphets.com, the world’s first and only online pricing advisory services that utilises a global panel of pricing experts and thought leaders.
I’m not going to make any apologies for this episode of ‘Ten Things’. The fact is, pricing is getting scary. If you want to know why, and you can stomach it, stay in your seats.
If not, and you don’t want to know what the score it, I suggest you look away now!
Your customers have never had more power than they have today, as we’ll see shortly,
there is now an entire generation for whom the internet has always existed, in fact they own Web 2.0… the internet of social media, user generated content and rating and recommendations,
those customers have used the internet to learn more about marketers, than marketers have learned about customers, but
having said that, this is, very slowly, starting to change, and smart marketers are starting to address this imbalance.
In Australia, 5% of retailing is now conducted online. In the US, its close to 10%, and in the UK its fast approaching 20%,
on top of that, 70% of all purchasing decision are researched online… and that includes researching the price!
this process is so easy today – just log on to a price comparison websites like PriceGrabber and find what you’re looking for,
price is the most quantifiable attribute of your product. It’s what the customer is going to part with to acquire a product from you,
if you appear uncompetitive on price on a price comparison website, well… you might not even get a look in.
As the numbers I just mentioned suggest, there are still a lot of customers shopping in store,
but don’t rest on your laurels just yet!
most of those customers walking around your shop floor have got smart phones in their pockets, and
there’s an increasing likelihood that they are going to pull out that smartphone, scan a product’s barcode, and walk out the store to buy that product cheaper online.
We know customers don’t like price increases… but they’re not going to tell you that anymore!
they are going to tell everyone they know… on Facebook… on Twitter… on LinkedIn,
look at what happened to Netflix in the northern summer of 2011… over 82,000 hostile comments on their Facebook page following a price change.
There are all sorts of price guarantees on offer… we’ll match the competitors price, we’ll beat the competitors price, never knowingly under-sold, just to name a few,
and we all know that redemption rates on these sorts of initiatives are very typically very low, and depend on the customer doing a whole lot of searching, to-ing and fro-ing,
this site, eyeona.com, monitors what they call ‘your shopping hangover’. You simply scan your purchase receipt and if the product you’ve purchased goes on sale shortly thereafter, they’ll chase down a refund of the difference for you,
now what did you say that redemption rate was?
No body is perfect, including people responsible for pricing!
in 2005, Expedia advertised rooms at the Hilton Hotels in Osaka and Tokyo for $2 to $4 per night. One guest booked a room at the Tokyo Hilton for a year (why wouldn’t you – it would be cheaper than living at home),
this German website doesn’t exist anymore, but that’s not to say a similar site isn’t going to reappear in the future,
this site would deliberately crawl the web for your pricing mistakes like the one I’ve just described, and then alert its subscriber base to that ‘deal’ (if you could call it that),
Err at your peril!
Some of you may use competitive pricing strategies – you charge what the competitor charges,
in effect, that approach is akin to outsourcing your pricing to the competition,
HandsUp.cn goes one step further – it lets customers recommend the products they want to buy, as well as allowing them to name their price,
this may scare some traditional, conservative retailers. But it sounds like a great product development and pricing research platform to me!
Sorry, professional service providers, but you need to be scared as well,
customers do not want to buy your time, especially when it is billed in six minute intervals,
they want to buy a solution to their problem, whether it’s a tax return, the conveyance of a house, or architectural drawings,
you have so many alternative pricing models at your disposal… the benefits of which will accrue to the early adopters.
Which brings me to B2B, or business-to-business, pricing… and you guys should be scared, too,
as in B2C markets, your customers know exactly what they want,
they know your products and services are fit for purpose, your brand is strong, your after-market sales and support second to none,
but they still want you to respond to their RFQ, their tender, their auction… and we all know that they are about one thing, and one thing only…
and why do your customers know exactly what they want… well that is the number one reason you should be scared about pricing in B2B markets…
The little kid in the red shorts is pricing… and you know who he’s wrestling with… your customers’ procurement department!
I ask people who attend my pricing workshops if their company has a pricing department and a procurement department,
about 20% of delegates say they have a pricing department, but 80 to 100% of delegates have a procurement department,
this means that companies are more interested in the price they pay for goods and services than the price they get for their own goods and services,
and until you realise how to deal with procurement managers, you and your pricing is just going to get beaten to a pulp.
So there you have it… ten reasons to be scared about pricing. If you want assistance with any of the issues raised in this video, feel free to contact me. Details are on the screen now.
Thanks again for watching. I’m Jon Manning, founder and managing director of PricingProphets.com, and until next time… Happy Pricing.