Six Pixels of Separation - The Blog
June 4, 201011:57 PM

The Price Is Right

When it comes to Marketing, nothing else will happen if you don't get The Four Ps right.

It's all about the fundamentals (it always was, it always is). And while I think the new "P" (which is "participation") is just as important as the original Four Ps, you need that right marketing mix to get yourself to the point of marketplace success where "participation" starts playing an important factor.

Let's review The Four Ps of the Marketing Mix:

  • Product
  • Promotion
  • Price
  • Placement

Just remember, if you don't get the price right, nothing else will save you.

Pricing is critical, and when you make it arbitrary, strange or not clear and obvious to your consumers it causes tremendous friction and skepticism. Think about your local car mechanic: You walk into the garage because you have a problem with your car, the mechanic takes a look, then looks at you and randomly pulls a price out of the air that seems like an arbitrary combination of the parts required, the time it will take to fix and the potential amount you may be able to pay based on the type of car your drive, the clothes you wear and the neighborhood you live in.

That seems fair, right?

The service industry struggles with this as well, because the financial model is built around a "time is money" business model. The companies that get this model right are the ones who find the healthy balance between what seems like an arbitrary dollar amount and the actual value delivered. This is where the airlines (well, most of them) get it all wrong.

Here's a personal example...

Since January, I've travelled close to 85,000 miles (according to TripIt). Most of those trips are either full-fare economy flights or executive class. (I rarely travel on the cheapest flights because they are difficult to change and have too many penalties attached to them). In recent months, many airlines have (once again) changed their policies where instead of charging a simple "change fee" when you need to move your flight, they now charge you the flight fare difference (granted they sometimes charge you both a change fee and the fare difference).

This causes tremendous friction.

As a frequent flyer and loyal customer to a specific airline (so that the points can be accumulated for status) it is incredibly frustrating and stressful to have no idea what the outcome of a phone call or interaction at the actual counter might be when a flight needs to changed. In one instance, I had a full-fare executive class flight that was priced at over $6000. I needed to change the flight from a direct-flight, mid-day to a red-eye with stopovers, and the airline wanted to charge me over $1600 as that one ticket was now priced higher (obviously because it was closer to the departure date than when the first one was purchased). Funny enough, had I downgraded to a lower pricing/status structure, they would have owed me money.

Always watch your pricing.

"Whatever the market will pay" may feel like the right pricing strategy, but in order to remove the true friction and maximize profits, always focus on the different types of customers you have, what their specific needs are and how you can best accommodate them. There are very few people who don't believe in fairness when it comes to business. The net result is that the buyer and seller both feel like value was delivered and that both sides profit from the outcome. It's when that scale tips in either direction too far that problems arise (or when people feel like they are blatantly being taken advantage of).

Pricing (like the other Four Ps) is about finding the right (or perfect) balance. Pricing is not about surprises, uncertainty, consumer stress and the perception that it is arbitrary and changes from person to person and moment to moment. It's why people hate airline, gas stations and other pricing structures that are both mysterious and highly artificial.

Social Media won't save you if your products and services aren't priced perfectly for the marketplace.

What types of pricing nightmares/models make you crazy?

By Mitch Joel


Comments Comments Feed
  • Posted by eradke
    Mitch Joel

    Probably the most annoying pricing structure happens when there are no prices on the website and the company is the manufacturer and distributer of the product. It generally is a service business but I feel like I am getting screwed no matter the price.

    I am assuming this blog is for small and medium sized businesses. I do disagree that "what the market will pay" is a bad strategy. That is exactly what amazon does. I do not pay the same for the same good as you might. That is part of the reason they squashed www.blippy.com. There are other examples of dual pricing suck as collision repair and residents of Hawaii or really any foreign country where the price is listed.


    In my opinion, the price is dependent on how much it costs you to produce the goods or service. Eventually supply and demand comes into play.

    Reply
  • Posted by Lionel Matecha
    Mitch Joel

    Reminds me of the old business management joke: "I lose 5 cents per item but I make it back in volume."

    Reply
  • Posted by Mike Kujawski
    Mitch Joel

    Nothing annoys me more than tiered pricing strategies of car manufacturers and cable companies where in order to get the one thing you need most, you need to jump to the next level.

    E.g. 1 - My 2007 car from "manufacturer x" has no overhead light in between the driver and passenger seats. That would be a "feature" available only in the next package (a $1500 jump).

    E.g. 2 - Don't even get me started with my cable company...

    Reply
  • Mitch Joel

    Mitch, I read your blog, and your observations are usually spot on. I don't think I see the pricing issue in the same way you do here, though.

    Price is not the main constraint when selling an idea - the product and the marketing are. I think that you can turn a regular old product into one that people are willing to pay extra for. You just need to make sure that the product is phenomenal, remarkable, and that your target audience (however small) absolutely loves the story around it.

    After you get the product and marketing right, you can make a business out of selling stuff that might be outrageously priced for you and me... But maybe not for the few people buy it.

    Reply
    • But pricing - regardless of luxury is always a part of it. You say it's about the product and the marketing (I agree), but the marketing is the four ps... and one of those "p"s is "price". It's a bigger part/factor than you think.

      Reply
      • Mitch Joel

        Maybe I'm not clear on your stance... From what I understand, you're saying that if price is wrong, the other 3 P's can't fix it.

        If that's what you're saying, then how can you explain that people are willing to pay $4 for a Starbucks coffee, which is not that different from the one they make at home? To me, it's more about the product (which is not just the coffee, but the story and the experience).

        Reply
  • Correct. If one of the four ps is wrong, you're going to struggle, but I never said price = cheap. Starbucks figured out the right blend of the four ps to make something remarkable. The point of this Blog post was for brands not to forget to focus on the clarity of pricing (which many brands do forget).

    Reply
  • Posted by Dmitry Sokolov
    Mitch Joel

    When discussing pricing it's impossible to overlook the price (and cost) of FREE. What considerations are involved in giving away goods and services? How much does FREE cost (TCO) and how consumers react to various versions of FREE? (trial, freemium, bait and switch, loss-leading platform-builder, etc)? Can setting the price at FREE destroy or dilute value for the business or beyond that, an entire industry?

    Example: Digital Signage industry long struggled selling value of dedicated Digital Signage content management software, resulting in prevalence of freemium or outright free software. Tier 1 hardware manufacturers and cottage industry start-ups peddle various versions of "FREE". Free software is offered either as a loss leader component of the total solution or simply out of ignorance, based on vendor propaganda designed to sell more large format displays.

    FREE Digital Signage Software won RFPs, became a staple product from every display manufacturer and a standard for the IT Reseller looking to make margin on hardware, install and service, not capable of articulating value of a purchased, robust software platform. Software became an afterthought in many projects.

    Much like in your previous piece "When Free Costs A Fortune" in many of these projects a retrofit of paid software platform was soon in order (shooting TCO and total project cost through the roof). These overhaul jobs became the favorite of established Digital Signage vendors/reselelrs as the customer was burned, educated through failure and willing to (over)pay for the right solution the second time around.

    End result of an industry obsessed at driving price point to FREE? Weakened customer confidence, industry-wide confusion and drastically reduced adoption rates for Digital Signage. (Who wants to adopt a new technology when you hear or see so many bad examples?)

    In an emerging industry, highly dependent on customer education and consultative selling not much could be worse.

    Does this mean FREE is bad? No, but something to consider on possible effects when FREE Pricing model takes over at the expense of everything else.

    Reply
  • Posted by Parissa Behnia
    Mitch Joel

    Thanks for this post. I recently rented a car for a short distance and when I returned the car, they charged me $13.99 fuel charge because I drove the car for less than 75 miles. It's an automatic charge they add regardless of returning the car full and having the receipts to show for it. It's up to the customer to circle back to a "customer service" agent to reverse the charges.

    Does business hate their consumers that much?

    Or are we so jarred and shaken by what happened in this latest meltdown that every activity is assessed a fee of some sort to protect the bottom line with nary a though of the impression or impact it might have on a customer?

    Regards,

    Parissa Behnia
    Idea Chef
    678 Partners

    Reply
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