27 Nov 2014

Time for more creative pricing?

We tend to think that price is inextricably related to cost; the cost of raw materials, production or transport. But the price of most products bears little relation to the cost of components.

When we hear wholesale oil prices have gone down we feel outraged that our own fuel prices have stayed the same or reduced only slightly. But the cost of petrol is nothing compared to the cost of champagne or perfume. A vintage Dom Perignon goes for around £150 a 75cl bottle while a classy scent can cost £1,000 a litre. Both are beaten by printer ink – a typical HP cartridge costing £13 contains a measly 4ml of ink — the equivalent of more than £3,000 a litre.

We tend to think that price is inextricably related to cost; the cost of raw materials, production or transport. But the price of most products bears little relation to the cost of components. Petrol is a commodity, whose component costs, crude oil, refining and transport are dwarfed by tax.

A perfume costs pennies, but high price is part of the attraction. Expensive equals desirable. A classy perfume tells other people what you are worth. ‘Because you’re worth it’ is more than a catchphrase.

As long as everyone is making money, there’s no reason to change so everyone prices the same way. Sometimes when it is no longer possible to make money in a supply chain because margin is accumulating at a choke point suppliers are forced to find a new route to market that bypasses the choke point or takes out a link in the chain.

Gillette gave away its razor and made money on the blades. Computer printer makers ‘sell’ a printer for £30 and charge us £13 a time to ‘fill’ it with ink.

Ryanair shattered the cosy arrangement whereby everyone sold flights at fixed prices. Then they changed price by the minute according to supply and demand. Now they have become the main short haul carrier they are reintroducing booked seats and other historic pricing conventions.

Sikkens took another tack launching paint five times the price of market leader Dulux. It marketed the result or the solution, not the paint and sold long life protection with planned maintenance and guarantees to hard-nosed Local Authorities and large commercial property owners. They paid far more for a similar product. A different way of thinking, not a better product boosted its sales. Now Dulux is part of Sikkens’ owner AkzoNobel.

Coca-Cola experimented, changing the price of Coke by the ambient temperature. The hotter it got the more expensive their cool drinks.

Clever marketing promotes more than product and price. Too many building materials are priced as commodities not solutions. But because building materials have always been priced a certain way does not mean they always will. Builders are changing more rapidly than they’ve ever done. Is your pricing in a cul-de-sac? Disruptive pricing can turn a market on its head. And too tight margins are usually the trigger that gets people thinking.

Does your pricing incentivise the behaviour and change you want? If not, think about changing your pricing, not just your prices.

For strategic thinking and creative ideas contact Lucia Di Stazio at MRA Marketing on 01453 521621 or lucia@mra-marketing.com.

Save

Have a similar challenge to this one? We can help to achieve this for your business too. Click the 'MyNotePad' button at the top of the page or click here to find out more.

Accept cookies You must accept to the use of cookies for MyNotepad to function correctly