Pricing as Marketing Strategy, Part II

I want to finish writing notes about Lisa Wagner's article from the Marketing Money Map from which I just quoted.

I want "simply" to note the most salient and thought-provoking points I thought Lisa made.

• The biggest barrier to success that most entrepreneurs share when [they] first get into business is the fear of raising prices. . . .
• [The point she was attempting to illustrate with the story of her grandmother, the day-old bread and the placemats] The PRICE a person is willing to pay depends on how much they VALUE what they are buying.
• Price-shoppers always value the DEAL over the item they are actually buying. They will glow about the "price" they got, and not the "thing" they acquired. With this focus, quality and service are afterthoughts, and there is no loyalty. The lowest price will always get the price-shopper.
• Quality-shoppers value the QUALITY of the selling experience and the item, and price is not part of the conversation. . . . Not that they want to waste their money; they just place a higher value on the delivery of quality in the goods and the services.
• Some people like the "status" of purchasing certain services and products from certain providers. There's something nice about going into an exclusive restaurant and being treated as royalty, or getting those floor seats at the Laker's game. And in special occasions, you will splurge to have those experices because price isn't what's important, the experience is. [On a small scale, Starbucks is a great "price of spending" example. . . . If the outlets were packaged differently and at lower prices, it would not have the level of success that it has. The price point is part of the attraction.]
• Remember the coffee commercial where an instant coffee was "secretly" replaced for their usual coffee in a 5-star restaurant and they interviewed the customers who said it tasted great? --They used the commercial to say that their coffee was good enough to be served in an exclusive restaurant. What they failed to say was that these customers EXPECTED to taste great coffee.
  When you go to a 5-star restaurant, you expect great food, and great service, and, of course, great coffee. Clients come in with a complete set of expectations for having a great experience, which, unless something out of the ordinary happens, they will have.
  The same coffee served at McDonald's would have had a different set of expectations, and people would have been more particular about deciding whether they really liked it or not. They might have said it was okay or good, but not 5-star "great."
• If the price you are charging for what you do is too low compared to your market, then you will attract price-shoppers who do not value what you do and are just trying to get an end result in as cheap a way as they can.
• [Your business] becomes a commodity only when you decide that you are going to price yourself so that you only work for price-shoppers.
• Companies [that] advertise based [solely] on price [are] not a source of high-paying jobs and benefits for employees.
• If everyone bought on price, specialty stores would simply not exist.
• Customers want to feel appreciated and taken care of, and there is enormous value attached to that--one that needs to be reflected in your price as much as the technical quality of your work.
• If you are the BEST in your business, in craftsmanship and service, then not charging a price that reflects that [quality] is a crime.

Pricing as Marketing Strategy, Part I

Not exactly "History, Religion, Epistemology" or any of those other subjects I said this blog would be about. But maybe I need to shift my title.

Marketing is a form of communication. So maybe I can get away with these "side lights."

*******

Our extended family has been meeting every Sunday afternoon for more than a year at a local Thai-Chinese restaurant. Their food is amazing. And amazingly inexpensive.

Then, a few weeks ago: Disaster!

Friday evening, a group of us went to the restaurant and the service was terrible. No one took our order for a good 20 minutes. Normally, they are so solicitous. That evening, they didn't even give us water for 20 minutes!

Eventually the food came . . . dribbling out over a longer-than normal period. And one member of our party never got served.

Twenty minutes later, after everyone else had finished eating, her meal came.

"Excuse me?!?"

We asked for take-out packaging and the person who sat through everyone else's meal headed out for her next engagement.

Well, we went back Sunday afternoon, hoping for a much better experience. But it was not to be. Terribly slow service once more, and one of our party got skipped again for 15 or 20 minutes.

I spoke to the proprietor.

"We have had a hard time getting quality help," he said.

"I think we will stop coming for a while until you can get your organization back in order," I said.

And so we skipped a week.

Meanwhile, I got thinking: They need to raise their prices! They've got great food. But they are going to go out of business in a flash if they can't get it served right. It's simply not acceptable, socially, to enjoy your meal while another member of your party sits hungry. And if you don't eat it when it is served, you can't enjoy the food as it is meant to be enjoyed.

So last week I spoke with the owners: "You need to raise your prices!"

"We've been thinking about that. Maybe 25 cents an item."

"No!" I said. "You can . . . and should . . . raise most of them far more than that!

I am deeply concerned that if they don't raise their prices . . . significantly, and soon . . . they're going to go out of business.

I need to get them a copy of Larry Steinmetz's How to Sell at Margins Higher than Your Competitors.

Trading Up . . . Trading Down

I don't know who first alerted me to Trading Up by Michael J. Silverstein and Neil Fiske, but I've had the book on my shelf for a couple of years, and I've been pretty aware of its message:

• "New luxury" retailers (companies like Victoria's Secret, Panera Bread, Callaway Golf, Trader Joe's, etc.) do exceedingly well in today's marketplace. Why? Among other reasons, because . . .
• Luxury purchases are not [or, perhaps, no longer] the province, solely, of the very wealthy. The reason? Because . . .
• Almost everyone in today's society "trades up" in one or more purchasing spheres while "trading down" in others.

It is that last phenomenon that has attracted my eye. As Silverstein and Fiske summarize their findings (pp. xiv to xv):

Now that most [American] consumers can afford to buy the goods that fulfill their basic survival needs and still have cash available, they will [trade up and] buy products and services that are emotionally meaningful to them. . . .

Trading down is when consumers choose the low-cost alternative in product categories of little importance to them, and it is an essential part of the larger phenomenon [of trading up]. Without the availability of low-cost alternatives and commodity goods in a very wide range of categories, many consumers would be unable to afford the New Luxury goods they want to buy in the small number of categories that are most meaningful to them.

In category after category, the entry of a New Luxury brand, combined with trading up and trading down behavior, has caused its category to polarize. Both the growth and profits in the category move to the high and low ends of the price spectrum, while companies offering conventional goods get "stuck in the middle" and struggle to succeed and even survive. . . .

Well . . . I was reading a marketing newsletter late last year and came across a wonderful example of what Silverstein and Fiske are talking about.

This is from Joe Polish's Marketing Money Map newsletter. Polish's partner, Lisa Wagner wrote,

One day I took my grandmother to the grocery store, and she insisted on buying herself day-old bread in order to save a few dollars. I told her she didn't need to do that, and she told me that she wanted to be smart about her money, and that the bread wasn’t that much better fresh anyway. So we dropped the topic.

Then something interesting happened. . . . We checked her mail and her Neiman Marcus catalog arrived. She immediately saw a set of placemats, a set in a shade of red that would go great with her décor. I asked the price and she said, "$200. . . . Hmmmm. . . . These are good quality and that is a good price."

And on the same day that she bought day-old bread, she turned around and bought a set of pricey placemats!

Getting bread for herself is not important to her, so the price she was willing to pay was low . . . but entertaining others is very important to her, so the price threshold of what is a "good price" was much higher.

When I was a "starving" student in college, and Top Ramen was one of my food groups, I always managed to save up enough money to see my stylist on a regular basis. I didn't think twice about scrimping on the quality of the food I was eating, but my hair . . . --Are you kidding me? Risk a bad haircut or color at a discount shop? No way!

In our family I have seen the same behavior.

Back when we were so poor that we bought virtually everything as cheaply as possible, there were a few depths to which we would not stoop.

One: We would occasionally buy ice cream. And while it seemed we enjoyed almost every other form of "unbranded" food, ice cream was not one of them! If we were going to buy ice cream, we would wait for Breyer's or one of the other premium brands to go on sale.

Similarly with fruits and vegetables. Sarita likes fresh. Canned and frozen are . . . for other people.

So even in the middle of the winter, we would buy those fruits and vegetables we could afford fresh. Nothing less would do!

So how is it with you? Where and how do you trade up . . . and down?