Marketing and selling in tough economic conditions:
Pricing taken for granted in marketing
Prasanna Perera
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Series by Prasanna PERERA, Marketing and Management
Consultant, Chartered Marketeer, CIM UK
ARTICLE 25
Despite the importance of effective pricing for marketing success,
many organizations 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 overreliance on finance personnel, to independently formulate
pricing policy and strategy.
c)The lack of financial/costing knowledge on the part marketeers.
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. (Eg. Litres,
grammage) This is an important aspect for Sri Lankan marketeers 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. 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 marketeers 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
and special payment terms are the popular methods used 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. Marketeers and non
marketeers 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, others 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 marketeers 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 underutilized aspect, in the marketing
research spectrum. Marketeers 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. (E.g. fuel,
LP gas).
If multiple market segments are being served, there is a possibility
to practise 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 and refrigerators can be moved out of the
market, by encouraging consumers to "trade-in".
The benefits of a trade-in pricing strategy are two fold. i.e. it
encourages brand switching and also upgrades consumers and the market.
Conclusion
As highlighted through this article, the value of carefully crafted
pricing strategies are immense. By paying attention to the strategic
aspects of pricing, marketeers will be able to take advantage of their
most potent tool, to increase sales revenue and profits.
Pricing decisions should be carried out in an integrative manner,
giving due consideration to corporate objectives.
"Results are gained by exploiting opportunities, not be solving
problems". |