Make Marketing History

The views of a marketing deviant.

Thursday, February 15, 2007

Chocs Away!

Pricing is the most nebulous of the marketing Ps to me. The key is obviously to fill (in as unique a way as possible) a need that people are prepared to pay for without thinking much about the cost. In economics-speak, this is known as being a non-commodity product.

But the value to the user is ultimately dependent on their worldview and utterly subjective. So, in some sense, you should charge what you can. Too many businesses undervalue their expertise and thus limit their revenue when the willingness of people to pay for something is greater than they imagine (as I was forcefully reminded the other day when witnessing the eagerness of people to pay for the services of a psychic).

However, there is an upper limit to your mark-up - that point at which you move from valuing your expertise to implictly mocking your users. It's a highly profitable tactic, but one that has a limited shelf-life as the wonderful Noka expose recently revealed.

Branding may change your users view of you, but it won't help you if you're undercut by a disruptive competitor who would seem to offer something that's almost as good, but much better value for money.

2 Comments:

Anonymous Brian S. Nick said...

John, how would recommend a startup business go about making decisions on pricing (other than trial and error)?

3:06 PM, February 15, 2007  
Blogger john dodds said...

What a question Brian! As I indicated, I think this is a hugfelt difficult area. The glib answer is to make yourself so indispensible to your customers that they will pay whatever you ask and I've heard Jet Blue's CEO quoted as emphasising his focus on building a critical mass of passengers in the knowledge that there's time in the future to put prices up.

However, there is some academic study of the area and let me point you to this McKinsey book - http://www.mckinsey.com/ideas/books/priceadvantage/ The link allows you to download one of their case studies and while it may not be relevant to your business, it may give you some new ideas to consider.

6:36 AM, February 17, 2007  

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