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by Prasanna Perera, Chartered Marketer

In developing markets such as Sri Lanka, pricing decisions are the most critical for success. Through this brief article I wish to address this aspect of pricing and provide certain insights.

Common mistakes carried out when making pricing decisions in Sri Lanka.

Many Sri Lanka organisations make pricing decisions in isolation, without giving due consideration to other elements of the marketing mix. Hence, the result is a lack of integration among the various marketing mix strategies and elements. For example, pricing decisions are made by non-marketers without proper understanding of how pricing decisions effect product image, positioning, perception and personality. Hence, a "value of money" product, priced as a premium will be counter productive. Therefore, pricing decisions must be always integrated with the rest of the marketing mix.

Internal cost considerations are often the key driver, for price revisions. Costs are important no doubt, but must be blended together with market considerations. Being only cost focused, has its own limitations, resulting in loss of market share, customer dissatisfaction and brand switching. A cost focus is not necessarily bad but being "over obsessed" with cost can be detrimental.

Pricing decisions in most instances are defensive and reactive in nature. There are major advantages to be capitalised upon, by approaching pricing decisions in an offensive and proactive manner. Market leaders would do well to be proactive in pricing decisions, since price leadership also has its attractions. (Perception of higher quality and superior value). It must not be forgotten that pricing has a promotional value. For this to be exploited, priced based promotions should not be carried out too frequently. This results in a negative perception being created, among target customers. The discount product or discount store image will result in customers expecting discounts on a regular basis. The negative aspects of this position are obvious.

In a Sri Lankan context, substantial price increases are detrimental in all aspects. It is always better to increase prices in small amounts frequently. This is the psychological aspect of pricing that Sri Lanka marketers should be alive to, when pricing decisions are made. Most marketers do not adopt a differential pricing strategy, since they are not confident of how the market is segmented. If a professional segmentation exercise is carried out price differentiation could be practised and the benefits could be great.

Products have a "perceived value' and this can be exploited through pricing. Unfortunately, we do not observe Sri Lankan marketers, attempting to consciously capitalise on this by clever branding and positioning.

Guidelines when making pricing decisions

Sri Lanka is a price sensitive market for many products and services. This can be observed by the influx of customers for "sales" of various products and services. Hence, pricing decisions should be made in an informed and objective manner.

The Sri Lankan customer is mainly concerned about the "price to be paid" (the investment). In most instances, the grammage or litreage is not checked. It is difficult to rationalise with the Sri Lankan consumer, that you are providing a higher weight than competitors and hence, require them to pay a higher price (higher investments).

It is better to make pricing decisions collectively, after obtaining inputs from all functional heads. This will result in a higher commitment and less disagreement in this very sensitive area. Marketing persons should take the lead in the area of pricing, by looking at pricing decisions objectively. Most important is not to shy away when pricing issues surface.

An effective way of overcoming resistance to price increases by customers, is to invest in brand building and customer loyalty enhancement. Basically, not making pricing the central issue, but to work around it. "Hardcore" customer loyalty helps insulate against price increases, in inflationary economies.

Straight price discounts should be avoided, as much as possible. Instead, enhanced value should be provided in an indirect manner, such as free issues, bonus offers and free gifts. This will result in "non price" perception being created in the mind of the customer.

Do not be obsessed by costs alone, but balance it out with market considerations. Excess of either is not desirable. Ideally an outward-inward perspective should be the best.

Conclusion

Pricing decisions are not easy in any context. In a majority of markets, it is a crucial decision, affecting marketing performance. Hence, it should be approached in a professional manner at all times, keeping in mind that "Marketing is Business". In business, a positive return on the investment made is required. Pricing is important in meeting this end.

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