Savvy consumers see through pricing strategies

I always look to see how many people comment on this column online, and how many times it is retweeted. As an anonymous columnist, it is the only feedback I get.

However, the one story that received the lowest level of engagement for some time was my piece a few weeks ago on pricing strategy. That disappointed me because I think ‘Price’ is perhaps the most important ‘P’ in the marketing mix.

Last week I wrote about how brands and consumers have changed post-recession, and one thing I think has changed is how we all react to pricing.

Consumers today are more savvy than ever. As such, I think that they understand the principles of what makes up the price. They get the “cost plus” argument – that brands/retailers need to make a margin – and also understand that price can be used to drive behaviour. I remember working on a brand that changed customers’ payment behaviour with a discount for payment by Direct Debit. Today, you regularly see retailers adding a surcharge for payment by credit card. Both effectively communicate to the customer that paying in a certain way is more/less costly to the company, and the company has to pass that on.

In the same way, customers recognise that a big chunk of cost is in packaging, so expect to pay slightly more for a smaller pack size of the same product. They also get the fact that better quality ingredients cost more, so a “Finest” range should cost more than its “Essentials” equivalent.

But where customers get annoyed, is when there is no apparent cost advantage in a pricing decision. Why do customers get penalised for boarding a later train than their advance ticket was booked for? The train company is still running that train, still got their money upfront, and still has the same number of carriages and seats. Does a bank customer who goes moderately overdrawn cost more to manage than someone who remains in credit but makes ten times as many transactions in a month?

As marketers, we need to think through the consequence of our pricing decisions, and stand in the feet of our customers if we want them to trust us…

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