Importance Of Pricing Strategy in Preventing High Price Sensitivity 🏋️
Along with increasing competition and overly saturated markets, your customers may start to become overly fixated on prices alone. The danger of high price sensitivity is that you lose control over purchasing behaviours and have less room to push value. Your customers will start to reject your offering based on price alone without considering its value or worth. In this article, we’ll be tackling the importance of pricing strategy in order to prevent high price sensitivity.
Preventing High Price Sensitivity – Importance Of Pricing Strategy
Pricing can affect everything about how your product is received by the market. That is why it’s critical to understand the importance of pricing strategy. A price that is too low may not generate enough interest or have enough of a margin for profit. Set the price too high and you may also lose customer’s interest.
The key is to find your Goldilocks zone. This also involves a great deal of insight into your positioning and target customers. Brands like Supreme may seem outrageously priced, but their execution brilliantly cultivated hype and exclusivity instead. What happened when they set the price high was that they drew in customers on the premise of prestige and buying into a culture.
Unfortunately, this isn’t a cut-and-paste template. Businesses won’t find the same success using the exact same pricing method. It’s all about tailoring your strategy to your unique business model and branding.
The lack of a grasp on these aspects could also trigger high price sensitivity. This is one of the main things you’ll want to avoid.
What is Price Sensitivity?
Price sensitivity in a nutshell refers to how sensitive your customers are to price. This measures the number of sales you could stand to lose or gain depending on how you raise or lower your prices.
Customers with lower price sensitivity means you have more command over your prices. Even if you raise your prices, you won’t lose customers because they’ll likely attach more value to your product or service quality rather than how cheaper an item is compared to your competitors.
Higher price sensitivity means that your customers are more likely to fixate on price, giving you less wiggle room to alter price points. Raising prices will cause customers to reject your product or service in favour of cheaper alternatives.
High price sensitivity is often associated with the idea of commoditised customers.
Commoditised customers refer to individuals that become highly sceptical in a given market, have routinized buying behaviours, and prefer fast and easy transactions regardless of the brand or product. Products competing against each other become indistinguishable in terms of features and functions. As a result, this drives all the focus towards price and ease of access.
The danger of falling into a commoditised market is that you are no longer able to leverage the value of your product over prices. Customers become uninterested in innovations and creative marketing.
It’s tough to get customers out of this mindset, but it is possible. You’ll need to take extra steps to address the unengaged customer. Take note of psychological states and use insight and feedback to your advantage.
As with most things, the best cure is prevention. Diminish price sensitivity before it gets too high by optimising your pricing strategy.
How to Diminish Price Sensitivity
Fixations on price are hard to overcome, but with the right strategy, it is possible to redshift customer focus onto value. These are several key points you’ll need to consider:
Revise Your Pricing Structure
Your pricing structure has all the capability you need in order to drive value towards your product and away from the actual price point. There’s only so much market testing you can do. If your pricing structure is no longer working in your favour, it’s time to revisit and revise.
Instead of pricing per unit, consider pricing in terms of the value being delivered. Then, vary your prices according to distinctive features of your product or service offering. For example, when Goodyear noticed customers were reluctant to pay more for innovative products, they began basing their prices on the estimated number of miles from a certain model.
This worked because it made it simpler for customers to understand the value of a given product. Therefore, rather than going head to head with competitors as they set their prices, Goodyear focused on personal relevance and customer value drivers.
Overpricing To Drive Prestige
A counterintuitive method to stimulate interest and value is to overprice in order to drive prestige. Many ubiquitous brands do this, like Supreme and Apple.
Apple products are definitely on the more luxurious end of technology, yet they have managed to maintain a consistent, strong appeal and demand. If done well and combined with excellent marketing strategies, you could stimulate a lot of curiosity around your products.
For example, at higher price points, customers are compelled to wonder what justifies the prices. They start looking at the quality and unique features you offer. The more curious they are, the more they remember your product. And as long as there is an answer to their curiosity, you can achieve prestige.
Apple products = superior quality and design.
Organic products = natural processes, free trade harvesting, better livelihoods for farmers…and so on.
Equalising prices between your product offerings is another interesting way to drive more emphasis towards value rather than price. What this means is that you offer a fixed price no matter the variation.
Say, you walked into a music store or an accessories shop and saw that everything was the same price, you’d naturally ask which variation is right for you. But if you walked into the same stores and saw varying prices, your immediate focus may be the item that saves you the most money or has the best features/functions suitable for your needs (for sports activities, office attire, etc).
A slightly more controversial way to get customers to pay attention to value is price partitioning. This method involves breaking down an offered package into its components. For example, rather than selling something as a whole, you reduce the base price but omit certain features and offer them as an add on.
Common examples include airline tickets with add-on baggage or meal options or cable television with add-on channels. Unfortunately, this can have repercussions if not done exactly right. So, unless you’ve done adequate research and testing, this isn’t the best strategy to try.
Bottomline – Importance of Pricing Strategy
In conclusion, pricing strategy is incredibly important in preventing high price sensitivity. Once you see that your product or service is being commoditised, it’s time to revise your structure. It may take a little bit of trial and error, but that’s how you find out what works. The best strategy is to hire a competent pricing team with expert knowledge that can help you decide which direction your business should take.
For a comprehensive view on maximising growth in your company,
Are you a business in need of help to align your pricing strategy, people and operations to deliver an immediate impact on profit?
If so, please call (+61) 2 9000 1115.
You can also email us at email@example.com if you have any further questions.
Make your pricing world class!
- marketing strategy (7)
- Organisational Design (13)
- Pricing Capability (62)
- Pricing Career Advice (11)
- Pricing Recruitment (15)
- Pricing Strategy (68)
- Pricing Team Skills (11)
- Pricing Teams & Culture (15)
- Pricing Transformation (17)
- Revenue Model (6)
- Sales Effectiveness (7)
- Talent Management (5)
- Technical Pricing Skills (32)