When recession hits, pricers seem to grab onto a couple of tools: how soon to discount, and how much? It seems more risky to use other pricing approaches in bad times than in good, but, as authors Marco Bertini and Luc Wathieu point out in the May Harvard Business Review (”How To Stop Customers From Fixating On Price“), smart pricing strategies can also serve to remind customers about things other than a product’s… well, price.

Bertini (London Business School) and Wathieu (European School of Management and Technology) identify four ways pricing can get customers thinking about a product’s distinctiveness:

1) Structure – pricing based on value delivered rather than on traditional (e.g., feature-based) attributes can help customers rationalize cost by tying it to a particular benefit. Example: Goodyear charging higher prices for tires with longer lifespans.

2) Pricing high (but not too high) - if a product has some inherent advantage, a premium price can reinforce the product’s distinctive image. (This fits Apple’s pricing strategy to a T.) Bertini and Wathieu found that, for example, pricing organic produce at 50-80% above standard competition aided recall and raised intent to purchase. (A low premium had little effect, and, sadly for skim-pricers everywhere, so did a very large premium.)

3) Partitioning – If a product includes a number of different benefits, it may make sense to charge individually for those benefits in order to make them stand out. Write Bertini and Wathieu, “people are unlikely to factor a benefit into their choice unless an explicit charge is made for it.” They also agree that this strategy can be taken too far, as in the recent, nearly complete unbundling of the humble airline ticket, in which separate charges for restroom use are being seriously considered.

4) Equalizing price points – companies often charge different prices for similar items (for example, in Pennsylvania, milk prices go up with fat content – kind of counterintuitive, isn’t it?). Recall the record labels’ ultimately successful battle with Apple to have some iTunes selections priced at $1.29 versus $0.99. The authors state that removing the small pricing distinctions between similar goods can increase consumption overall, by simplifying the consumer’s job at the point of purchase.

Image source: sharpstick's photos

Original Post: http://caddellinsightgroup.com/blog2/2010/05/combat-consumers-price-sensitivity-with-smart-pricing-strategies/

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