There are two ways of looking at price points, viz. the perceived price points in the consumer’s mind and the real price points dictated by coinage, writes Mainak Dhar in ‘Brand Management 101’ ( >www.wiley.com ). Psychological price points are sometimes intuitive, like $10 versus $9.99, but sometimes you need to dig a bit deeper to understand what the price points in your category may be, Dhar explains.
“They may be defined by simplistic ‘round numbers,’ but also by the consumer’s competitive benchmarks. The best way of understanding price points is to get a full picture of the pricing landscape that your consumer faces.” If, for example, the market-leading brand is available at a price of $20, consumers are probably more likely to consider trying another brand that is at or below that price point.
The second type, relating to coinage, is often relevant in some developing markets where products are generally sold in low cash outlay units, the author informs. “For example, in Vietnam, where the currency is the dong, a whole host of trial-sized packs and single-use units are available at price points like 500 and 1,000 dong. The shocking realisation is that there is no coinage in between these two amounts.”
That throws traditional thinking on pricing, which normally operates on raising prices to cover inflation or costs, out the window, Dhar reasons. “If you are playing in this segment at 500 dong, the only increase you can take is to double your price at one stroke!”
In a chapter on price competitors, the author rues that the biggest mistake most mainstream marketers make is to assume that the low-priced competitors are somehow inferior, or to think that it is impossible to match the costs. “Both are dangerous conclusions. The first may lead marketers to underestimate a serious threat, while the second may be turning a blind eye to inefficiency in their own systems.”
During a war, the best commanders are the ones who try to get into the minds of their adversaries and think like them; in understanding price competitors, you need a similar approach, reads a helpful analogy. The first step is to put yourself in their shoes and construct what you think their structure looks like, Dhar begins. “What do you think their product costs? How much do they spend on marketing? What is their pricing?”
With a few such simple questions based largely on publicly available information like media spending, raw material costs, etc., you can create a picture of what their cost structure looks like with a fair bit of accuracy, he notes. “The next step is benchmarking. Put your offerings side by side and see where your costs lie in comparison.”
Another useful suggestion is that specialised offering can come to your rescue. “This may be in the form of a lower-priced sub-line on your brand or a new brand altogether. In either case, the basic principle is the same – create a specialised offering that plays by the rules of the price competitor without risking your base business.”
Your real source of competitive advantage, however, comes not just from launching a lower-priced offering, but from the skills and capabilities you can borrow from your base brand, Dhar concludes.
Ready takeaways.
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