Question

Topic: Customer Behavior

Perception And Price

Posted by Glassdw on 8/8/2009 at 9:32 PM ET 250 Points
How much does customer perception affect pricing strategies by companies and how do you get accurate data about perception?
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  • Posted by SteveByrneMarketing on 8/8/2009 at 10:46 PM Accepted
    Hi Glassdw,

    Another way to state your question is "how much does brand affect pricing strategies". And the answer is it depends. Sometimes consumers will prefer generic brands (I know an oxymoron) over typical brands because the product catagory seems truly generic ... paper towels, aspirin and so on.

    True Brands on the other hand represent brand specific differentiation. So premium brands would command higher prices than value brands. Regarding "accurate data" for any given product in its segment, that will usually require some fairly extensive research, both secondary and primary.

    To provide a better informed answer, we will need more info about your products specific situation.

    Hope this helps,

    Steve

  • Posted by Gary Bloomer on 8/8/2009 at 11:05 PM Accepted
    Dear Glassdw,

    The answer to your question is "it depends" on all kinds of things.

    Who is buying?
    Who is selling?
    What's being sold?
    What's being bought? (This is NOT the same as what's being sold)
    What's its perceived value?
    What's its message to the people who will be seeing its purchase?
    How much disposable income does the target audience have to spend on these things, goods, or services?

    Generally, we're ALL snobs and ordinarily, our perception is EXPENSIVE = GOOD. So be default, CHEAP = CRAP.

    When was the last time you saw a $35 Rolex that wasn't hidden under a blanket on Canal Street in lower Manhattan, or that wasn't snuggled under the coat of some shady looking character along with fifty others on a street corner as an equally shady looking character kept watch for the rozzers?

    Never.

    But when you buy that $35 Rolex, you claim a tiny part of something richer and it's that facade that others see and all too often accept BECAUSE THAT'S WHAT THEY PERCEIVE.

    And even though you know it's a knock off, your viewer sees you in another, more expensive light.

    When a customer spends a lot of money on something, by default they claim the higher ground of superiority, they claim bragging rights, they get to show the world that their toys are shinier than those of other, less well off people.

    Perception equates higher price paid with greater significance, significance that rubs off on the buyer of the higher priced item and significance that is apportioned more to the person who is able to pay the higher price by the person who can't afford whatever the bauble is.

    But it's all a front.

    A $3,000 Rolex from 5th Avenue tells time no more accurately than a $20 Timex from Target. The Rolls Royce might get you to the church in style but it probably won't get you there through rush hour traffic any faster than some clapped out old banger.

    To read more about perception, check out Influence: Science and Practice (5th Edition) by Robert B. Cialdini along with, The Choice by Eliyahu M. Goldratt.

    I hope this helps.

    Gary Bloomer
    Wilmington, DE, USA



  • Posted on 8/9/2009 at 6:32 PM Accepted
    Let's start with your second question: How do you get accurate data about perception?

    There are a number of options, depending on your industry and your budget (and how important it is to have good information). One approach is to do a brand audit to see what attributes the target market ascribes to each of the major brands in the category. This is often very rich primary research, and it can provide the basis for sound positioning and pricing strategy.

    Another approach is to look at market shares and pricing/promotion spending by geographic market, and treat the universe as a collection of "test markets." Very often there are pricing variations by geographic region, and you have a real-world "test" of various pricing approaches. All you need is a structured analysis of existing data.

    The options continue, of course, because there are so many possible variables that impact brand perception and pricing.

    If this is an important consideration for you, we can probably help you with more specific recommendations. Contact me via the email address in my profile.
  • Posted by Glassdw on 8/9/2009 at 10:06 PM Author
    Realizing Positioning a product also counts heavily in pricing strategy, do utility & quality play bigger parts than branding for first-to-market products?
  • Posted on 8/10/2009 at 7:55 AM Moderator
    It depends on what you mean by "branding." If it's a synonym for Positioning, then utility and quality are attributes, not essential benefits. In that case, utility and quality would not play a bigger part than Positioning.

    If "branding" means things like name and logo, then utility and quality would probably be more important.

    So it all boils down to your definition of "branding." It's really just a semantic issue, not a marketing issue.
  • Posted by Gary Bloomer on 8/10/2009 at 9:28 AM Member
    Dear Glassdw,

    You asked "Do utility and quality play bigger parts than branding for first-to-market products?"

    Great question, to which the answer is both yes and no ... and often at the same time because here, we're entering the complex world of the psychology of buying, need, want, and desire.

    Which means one important thing that way too many marketers NEVER see or are quietly ignorant of: the innate irrelevance of branding.

    In a nutshell, big box, Madison Avenue branding is a social lie and always has been. Yet annually, many hundreds of billions of dollars are spent to prop up its fragile bones.

    All kinds of people get all bent out of shape when the word "branding" enters a conversation for the simple reason that many of them don't understand its true meaning (or one of its most significant meanings) within the wider context of marketing.

    To many people who "think" they know what they're talking about, "branding" is all about logos, style, and packaging.

    While some of this is a tiny bit true, the true psychological meaning of branding is way more complex and goes much, much deeper.

    Branding is more to do with our place in society and our need to fit in (or prove that we can stand out) than we care to admit or accept—and whether we like it or not it's something that's pretty much hard-wired into our DNA: similarity; differences; significance, social acceptance; being of a like mind.

    And yes, being "first" here, whether it's to market, or the first in a group to own or use something, imparts a huge amount of social "otherness", of standing out or of being able to stand out by dint of money or social position.

    This "king of the castle" attitude therefore imparts a greater sense of being more worthy to both the "king (or queen)", and to the subjects looking up at the throne, so to speak; it sets the bar in some way about what is considered to be "better". This in turn makes it more likley to have other people want to strive toward owning that worthier thing or to want to be more like that person of greater social standing.

    It's all about bragging rights.

    Branding's what happens in the customer's mind once the good feelings invoked and supported by the purchase and the use of product are weighed against the complexities and perceptions of value, price paid, bragging rights, form, function, cost or time saved, and associations implied.

    The use of a thing, its utility AND its cost (one's ability and willingness to pay the requested price, AND one's ability to afford the thing in the eyes of other people) are parts of an astonishingly complex and interwoven process that is the purchasing decision.

    Closely linked here is the notion and perception of value, in which one person's trash is another person's quality item, and much of this argument or value judgement is based on one's willingness and ability to afford and to be able to pay the requested amount in order to own or make use of the thing in question.

    Lordy! My brain's beginning to ache and in truth, this is way
    too deep a conversation to be getting into first thing on Monday morning. But nevertheless, it's an interesting and often overlooked aspect of the marketing process.

    But bear in mind, this is just my rambling opinion. I have NO psychological background and I've never taken a marketing class in my life. But I know about people.

    I hope this helps.

    Gary Bloomer
    Wilmington, DE, USA


  • Posted by SteveByrneMarketing on 8/11/2009 at 2:30 AM Member
    “Realizing Positioning a product also counts heavily in pricing strategy, do utility & quality play bigger parts than branding for first-to-market products?”

    Perhaps an example will help answer this new question.

    NyQuil was first-to-market in a segment called “night time cold medicine”. NyQuil’s “Positioning” was to re-position all leading cold medicine brands as “for day time use”, only NyQuil was ‘for night time use”. The quality was equal to the day time brands. The utility was equal to the day time brands, PLUS it helped people sleep better. The price points were on average equal to the day time brands, with perhaps a slight premium while the other brands scrambled to create their own night time product versions. NyQuil is still a brand leader and sales leader in its segment.

    So did utility & quality play bigger parts than branding? or was it product innovation, positioning strategy, market timing, competitive pricing and so on ...

    I’m not sure a 100% accurate answer is either known or knowable as it was a mix of these elements working together that propelled NyQuil to #1. Personally, I think in NyQuil’s case getting the positioning strategy right was most important factor to its success.

    hope this provides some perspective,

    Steve
  • Posted by matthewmnex on 8/11/2009 at 9:42 PM Accepted
    Some very interesting responses to your FIRST question here and it really goes to show that PERCEPTION plays a big part.

    In your question, you never mentioned the word BRAND.

    How much does customer perception affect pricing strategies by companies and how do you get accurate data about perception?

    But the first respondent jumped right in waffling on about brand :)) It was the perception of the respondent that coloured his answer. He never really read the question. That set the tone for the rest of the answers to follow.

    Here is a very simple answer to your FIRST question.

    People vote with their wallets. How do you get data about the optimum selling price for a product? Get it out into different markets at different prices and TEST it for price sensitivity.

    Price too low - you're leaving money on the table.
    Price too High - sales drop.

    Play with the pricing and discounting proposition until the 2 lines cross in the middle.

    If it is too low, you may be moving volumes but profitability is an issue. If it is too high, then sales conversions are lower but margins are better so you need to find the right place in the middle that gives you the ideal ROI.

    Always remember that ROI is king. Don't worry too much about volumes or about market share. It is useless to be the market share king if you are losing money.

    With respect to BRAND PREMIUM (how much extra can be charge based on the name) That is an entirely separate question and companies are spending millions to try to buy.build,grow Brand Equity in order to charge more for their products but the ROI formula above still holds true regardless of brand.

    If you brand equity grows, then surely you can tack on a little extra charge but don't forget that building the brand also costs a lot of money so we end up back at the ROI issue again.

    Don't waste one single dime on paying experts or making studies and research on where t position your price.

    Just get the product into the market and YOUR CUSTOMERS WILL TELL YOU WHERE TO POSITION YOUR PRICE'.

    Good luck,
    Matthew
  • Posted by SteveByrneMarketing on 8/16/2009 at 5:27 AM Member
    hahahaha ... People who live (or is it read) in glass houses Matthew.

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