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It costs £100 online, so it must be good quality….

I am a bit embarrassed to admit this but I have always been interested by company pricing strategy. For one transaction us buyers will be highly price conscious and shop around online to save pennies on an item, but at other times we can be highly irrational beings and persuaded easily to part with our hard earned cash, barely considering or comparing price.

Way back when I was a student I did a work placement at a marketing consultancy. One of their clients was a high-end cognac producer in financial difficulty. The consultant that I was working with advised the client to give their cognac bottle a leather stopper and a quality new box, and to increase the price ten-fold. Within the year sales had risen exponentially and that single price hike had saved the company from financial ruin, despite the cognac staying exactly the same. In the mind of the buyer, with the price change, the product had gone from being a perceived ‘run of the mill’ after-dinner drink to an exclusive cognac that people were prepared to pay a premium for. Ever since then I have been fascinated by pricing strategy. Yes. Sad, I know.

So knowing how fickle and irrational we all are as buyers. Where do you start? Before you get into the whole philosophy of buyer perceptions, positioning, perceived value etc you obviously need to start from the basis of the cost of production of the item or service. In the long term it is suicide for a company to charge less for the product than it costs to produce – but there is a whole philosophy behind where you go from this point.

  • Firstly, how do you want to position the product/ service? Are you going for the Pile ‘em high sell ‘em cheap strategy (eg Tesco’s value range) or for the higher price lower volume sales (Tesco’s Finest range). Your product / company strategy will obviously have a bearing on how you price your product / service.
  • Charge in 99’s. It sounds dumb but it really does work - £19.99 sounds a lot less than £20, £199 sounds a lot less than £200.
  • Steering the buyer to think they are choosing their own options, where you are guiding them to make a specific choice. (Usually the middle option).

Example:

Option A: £199 (with 2 product features)

Option B: £250 (with 4 product features)

Option C: £350 (with 5 product features)

  • Clinch the sale with an offer. I am a sucker for these offers: Buy 2 get third free, buy 1 get one free, buy 1 get 2nd one half price and any variation on the theme. When the buyer perceives that they are getting a bargain they will often completely change their buying patterns because of it."
  • Split the costs down into their lowest blocks – so £45pppn for a hotel sounds much cheaper than £1,260 for a week’s stay for a family of 4, or a gym membership £1 per day sounds a lot less than £365 for the year

We all see these prices and deals many times each day for the unique reason that they work. I could (but I won’t) go on for ages discussing the importance of pricing for the whole marketing strategy of the company and product range. Next time you are buying moisturiser at a store, however, or wine at the supermarket just give a moments’ thought to how you judge the perceived quality of the product you choose on its price.

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