Marketing sciences is everywhere – except in pricing

Who isn’t obsessed with ‘value’ at the moment, and within this vague concept what we do about ‘pricing’? In a world of uncertainty, it feels like it’s a very hot topic for marketers everywhere.

As extraordinary as this may be, the most valuable and easy to manipulate P in the famous 4Ps of promotion, product, place and price, is all but missing in the marketing literature.

Pricing is the trickiest of the 4Ps to find in marketing science. Picture: Phillip Pessar

Promotion, Place, and Product all have a large body of thinking that one can wade through on a cold winters day and get an informed opinion on the way forwards.

However, as for poor old Pricing… where does one turn?

Perhaps the only model that has been popularised, largely to the omni-present Mark Ritson’s endorsement, is the Von Westendorp method, which is about as exotic as it sounds, and this only scratches the surface.

It relies heavily on consumer opinion, completely devoid of context, accuracy and validity. Let’s face it, all consumers want to spend less. Any consumer who doesn’t say ‘I wish it were cheaper’ needs their head examined.

But there are a lot of examples of this being far from true. In fact, it’s not true about 99% of the time – most people don’t buy the cheapest option of anything, just about all the time.

Take for example the ‘price placebo’ (Shiv, Carmon & Ariely, 2005), a well-researched psychological phenomenon where people view a product with a higher price as more effective or higher quality than a lower priced item – sometimes when the products are identical.

Price placebo research has found that pain medication does a better job of reducing the perception of pain if the price is higher and the branding is stronger (Lee et al., 2019); discounted energy drinks have a lower cognitive impact than full price energy drinks (Shiv, Carmon & Ariely, 2005); and premium branded sunglasses lead to better performance on eye tests than un-branded sunglasses (Amar et al., 2011).

So, consumers saying they want ‘lower prices’ and ‘better quality products’ can sometimes be like asking for hot ice – the former makes the latter impossible.

However, that’s one small example in one small space of pricing.

Pricing, perhaps even more than the other Ps, runs right through an entire business, from business strategy and supply chains, to how the price is presented on shelf wobblers and shopping baskets.

It impacts everything.

Consider the following pricing observations:

Pricing is positioning – How you structure your pricing should be just as strategic as how you position your brand. Using cost-based pricing methods or slashing prices could be leaving a lot of money on the table with consumers, eroding your long-term brand perceptions and reducing your position in the market.

Pricing is promotion – Some brands are able to scream low price without eroding brand perceptions because they understand the strategic advantage in yelling about the right price for the right thing. They understand the difference between everyday pricing and that used just to get attention.

Pricing is Presentation – How you present your price is about as important as what the actual price is. There are a myriad of pricing heuristics and behavioural science tactics to choose from to ensure your pricing is presented to be as effective as possible. They all work differently in different contexts so it’s key to get under the psychology of pricing.

Pricing is Process – The most boring and important one of all. What’s your process to ensure you’re optimising your pricing strategy.  Behavioural Sciences is about employing the power of the scientific method; hypothesising, experimenting, testing, learning, to get to the best pricing outcomes for your business.

The game of pricing is not like golf where the lower the numbers the better. It’s more like chess, where every move matters.

If brands want to ride the wave of the economy, establishing the fundamentals of pricing are paramount, powerful, pertinent …and other p words.

We’ve amalgamated what the world of marketing sciences has to offer on pricing, and we’ve developed a test and learn approach to getting pricing right… which at the very least is something more behavioural to consider than Count Von Westendorp and his consumer survey.

Matt Plant is Thinkerbell’s head thinker and a behavioural sciences specialist.

Sources:

Van Westendorp, P (1976) “NSS-Price Sensitivity Meter (PSM)- A new approach to study consumer perception of price.” Proceedings of the ESOMAR Congress.

Shiv, Baba, Ziv Carmon, and Dan Ariely (2005), “Placebo Effects of Marketing Actions: Consumers May Get What They Pay For,” Journal of Marketing Research, 42 (November), 383–93.

Lee YS, Jung WM, Bingel U, Chae Y. The Context of Values in Pain Control: Understanding the Price Effect in Placebo Analgesia. J Pain. 2020 Jul-Aug;21(7-8):781-789. doi: 10.1016/j.jpain.2019.11.005. Epub 2019 Nov 13. PMID: 31733362.

Amar, M., Ariely, D. Bar-Hillel, M., Cameron Z. and Ofir, C. (2011). Brand names act like marketing placebos. The Hebrew University of Jerusalem – Centre for the Study of Rationality, discussion paper 566 (February), 1-7, Jerusalem, Israel