Pricing sends a message – fast

By Robert Wheatley

In a recent editorial in AdAge, author and consultant Al Ries described the devastating impact of variable pricing on the airline industry and how it worked to effectively commoditize airline brands. His point: “There’s nothing wrong with being a high-end brand. There’s nothing wrong with being a low-end brand. There’s something wrong when you try to be both.”

Consumers quickly assign quality values to a product or service based on its price. An expensive watch is seen as a higher quality watch. The price sets a perceptual bar. We don’t always want the expensive item. And we don’t always want the cheap item either. If toilet paper is a commodity to some consumers, then cheap is better. The same consumer who buys the luxury watch may also buy the low-end toilet paper. Value means different things to different people.

What remains constant however are people assigning attributes qualitatively to a brand based on its pricing strategy. More expensive usually means better.

Gaps can undermine…

There’s an unyielding temptation in the current economy to drop price to move volume. But if the gaps between normal pricing and promotional pricing get too large, two things happen. First, consumers decide the price was too high to begin with and your equity immediately erodes. Second, they will shop the category looking for price reductions and purchase on that basis, thus the business is commoditized.

What message are you sending about the relative value and quality of your brand based on its pricing strategy?

Street musicians and perceptual value…

Damon Gudaitis of copyblogger had an interesting post today about “anchors.” A form of mental shorthand we use to make decisions quickly about the value of something in front of us. He tells the story of street musicians in Japan that underscores our typical behavior and how pricing anchors work:

“I learned another lesson about anchor pricing when I spent six weeks with my guitar as a street performer in Japan.

I watched two competing guitarists busking weekends in Fukuoka. Both were of similar ability. Both took donations, and also sold CDs. (If you ever plan on becoming a street performer yourself, cut a CD first. It really gets attention and enhances your credibility.)

One musician sold his CD for $20. The other sold his for $6.

Here’s the thing—neither one of them sold very many CDs.

But the musician selling CDs for about the going rate was signaling that his music was worth listening to. The performer selling CDs at way below market value was signaling that his music was junk.

The $20 CD performer got lots of attention. He’d consistently draw crowds of 20-40 people at a time, getting a modest donation from nearly every listener.

The $6 CD guy, about as good as the first, usually only got 2 or 3 people at a time and was clearly busking for love and not money.

And there’s another factor. Street performers fall into two categories: those who get change and those who get bills.

You guessed it. The $20 CD guy not only drew a larger crowd, but that crowd felt he was worth some folding money as a tip. The $6 CD guy heard nothing but the clink of spare change.

The successful busker didn’t accept the existing anchor for street performers, which is a couple of coins.

Instead, he created a new anchor with his $20 CD. That CD created a new context and a new marketing message, and that let him drop a new anchor that was more favorable to him.”

Long story short: pricing is powerful. Pricing says a lot about the worth, quality and value of what you do. If what you’re selling is worth more, then price it accordingly — it’s an important signal. Just watch the temptation to try and be all things to all people. If you’re in the low end, then live there. And ditto at the other. Straddling will undermine the entire proposition.

What do you think?