A Quick Pricing Guide for Marketers

In late 2023, I had the opportunity to participate in the inaugural Mini MBA in Management course and its exam simulation. I took on the role as the CEO of a fictional automotive company, having to make a few decisions to compete with other participants in the course and, fortunately, achieved a really good result.

And if I have to pick one key area to the success, it would be pricing.

And for that, I have to give credit to my marketing lens, as I can now see that if marketers understand pricing and get involved in the conversation, we can add significant value that could either make or break the business.?

After all, pricing is the most powerful lever of profitability to pull (out of four), with a 1% price change resulting in 10.29% change in profitability.

Let me tell you how.

1. Market-oriented Pricing

As a Marketer, our job is to be the voice of the customer. We need to come to the table with the following market research data:?

• How much are people willing to pay for the product? See?Van Westendrop pricing model.
• What product attributes do they value?
• Does this vary between segments? What are the segment sizes and values?
• How competitive is the current market? How much are the competitors charging? What are their strategies?

2. Brand Positioning

With the data from step 1, where do we want to position our price in the market?

• This needs to align with the overreaching strategy of our brand promise to the customers.
• Which competitors are we competing with, at the same price range, that we could we steal customers from?

Keep in mind that:

• If you keep your price low, your competitors can easily copy and undercut you, potentially leading to a price war where no one wins.
• When 'price' is your lever for pulling customers, they're more likely to be loyal to your low price, not the brand, and will easily switch when someone else can offer lower or better price.
• People value what they pay for. Price can affect your brand perception. Higher-priced products are expected to have superior quality or value.

As the wise man once said...

"Any damn fool can put on a deal, but it takes genius, faith and perseverance to create a brand." - David Ogilvy, Father of Advertising

Take no pride in discounting.

3. Value Proposition Communication

The last step, the tip of the iceberg, is how we clearly articulate the product's benefits and values that justify its pricing.

• How are we advertising to create the perceived value? Linked back to the previous two steps to highlight the critical attributes that your customers value and would pay for.
• Price framing - other than the logic and rationale of our price, we also need to address the emotional brain, using some behavioural science tactics such as framing to, subconsciously, communicate to the biases and irrational brain. See the video below for example.

A Small Tip

Beyond this, the business will also look at other data, such as sales volume, costs, and internal and external factors. Finance and Commercial departments may crunch some numbers to consider everything that can affect pricing decisions.?

In addition, when a company grows, it can develop the economy of scale by investing and developing efficient processes, equipment or partnerships, allowing it to produce or procure products in high volume at a lower cost. Therefore, they might be able to lower their price to pass on the benefits to the customers, if they believe that the increased volume will make up for the margin.?

This points out an important note that?if you're small, you cannot afford to charge lower prices?because you may not be able to compete with the bigger firms and still be profitable.??

The principles and theories of pricing extend beyond this article but these three points should give you a clearer understanding of how Marketers can contribute to the conversation and add value.

What else would you add to this guide?