‘Pricing’ taken for granted in marketing

PRASANNA PERERA
Marketing and Management Consultant,
Chartered Marketer,
CIM, U.K.

Despite the importance of effective pricing for marketing success, many organisations only pay lip service to same. The reasons could be,

a) A lack of understanding, of the true strategic value of sound pricing strategy.

b) The over reliance on finance personnel, to independently formulate pricing policy and strategy.

c) The lack of financial/costing knowledge on the part marketers.

Whatever the reasons may be, it is time that a professional integrated approach be taken towards pricing policy and strategy. Basically, pricing decisions should not be left to finance personnel alone. Marketing personnel should be actively involved in the process as well.

Pricing in a Sri Lankan context

Sri Lankans are very price sensitive, in most purchases. The reason is obvious, considering the fact that the country is very much in need of development. The most important facet in Sri Lanka, is the investment required in purchasing products and services. In other words how many rupees need to be tendered?

As against the investment required, Sri Lankans in a majority of instances do not compare the product volume purchased. (ex. litres, grammage) This is an important aspect for Sri Lankan marketers to note.

Always consider the price point, from an investment perspective, not from a volume/content perspective alone. Try and marry

 these two aspects, as closely as possible.

Another aspect is that Sri Lankans, are extremely “value conscious”. (Value for money) They demand greater value, for every rupee spent! As such, providing value through astute pricing, is a major ingredient for success. Of course, in inflationary environments, it is not an easy take. A careful balance between the value proposition and investment has to be met.

Pricing strategies in Sri Lanka, are based mainly on cost/mark up considerations. They are inward factors and do not reflect the realities of the marketplace. As such, the need in Sri Lanka, is for market focused pricing strategies, given the competitive intensities prevailing in the global environment.

Why is it important to “integrate” pricing decisions, together with other elements of the marketing mix?

Pricing decisions cannot be taken in isolation. They need to be integrated with the other elements of the marketing mix. Not to do so, could lead to ineffective marketing and a wastage of resources.

Take for example, a brand such as “Rolex”. Rolex is world renowned as a classical masterpiece of time and not merely a watch.

Pricing strategies adopted for Rolex, should be in keeping with the “positioning” of the brand and the image of luxury and status. Distribution activities for Rolex, should be essentially “exclusive”. Pricing policy should communicate this exclusivity as well. (Premium priced, hard to get, unless you have the will to get it.)

How many times have we witnessed, non-integrated pricing strategies being adopted in the Sri Lankan marketplace. Prices are increased, without due consideration to the other elements of the marketing mix. The results could be drastic. For example, if prices are increased of a certain product and quality standards are not maintained for same.

Therefore, all pricing decisions should be evaluated together with the other elements of the marketing mix. This is where marketers should come in and provide their inputs. To leave it to finance personnel, is simply not acceptable. Finance personnel cannot be expected to have the same outlook to pricing, as those in marketing.

The contribution that pricing can make, towards sales promotions

The value of pricing, as a promotional tool, has not been quite understood and exploited. However, due care must be taken not to over expose this aspect, since it could then be counter productive.

Price based promotions can be very effective in providing a short term boost to flagging sales volumes. Discounts, bonus offers, give-aways, special payment terms etc., are the popular methods utilised to carry out sales promotions, which are price based. Too frequent price based promotions, can be counter productive.

The chances are that consumers will develop negative perceptions about brands, which are regularly promoted through price. Marketers and non marketers would do well to understand this aspect.

What are the key influences on pricing strategy?

From a marketing standpoint, it is essential to be aware of the influences on pricing. Some aspects could be external, other internal.

Among the external aspects, the nature of the industry and competition is critical. The pricing strategies would be different in industries characterised by intense competition, to those which are not. It is also important that competition should not be followed blindly, when making pricing decisions.

When internal aspects are considered, cost structures and corporate objectives come into play. For example, if the corporate objective is to increase market share, the pricing strategies would be different to a situation where the objective was to increase net margins.

Many marketers and non marketing personnel, completely ignore their target customer, when developing pricing strategies. How many times have we observed pricing decisions being taken, without any reference whatsoever to consumer responses / feedback.

Pricing research is an under utilized aspect, in the marketing research spectrum. Marketers would do well, to relate their pricing decisions, to consumer response patterns. This will enhance the quality of pricing activities.

The “tactical” aspects of pricing

Pricing is a very potent, tactical weapon, provided you know how to fire it! For example, pricing could be used to reflect geographic differences. Different price points for different locations. (eg. fuel, LP gas).

If multiple market segments are being served, there is a possibility to practice differential pricing. Premium prices in one segment, penetration pricing in another.

This will enable different corporate and marketing objectives to be reached successfully.

In the marketing of consumer durables, price based allowances could be offered for “trade-in”. Older models of televisions, refrigerators etc., can be moved out of the market, by encouraging consumers to “trade-in”. The benefits of a trade-in pricing strategy are two folds. i.e. it encourages brand switching and also upgrades consumers and the market.

As highlighted through this article, the value of carefully crafted pricing strategies are immense. By paying attention to the strategic aspects of pricing, marketers will be able to take advantage of their most potent tool, in order to increase sales revenue and profits.

Pricing decisions should be carried out in an integrative manner, giving due consideration to corporate objectives.