How To Set The Right Price To Achieve Effective Price Satisfaction

According to an extensive study, Managers consider pricing to be one of the most difficult marketing decisions ⁽¹⁾ . And I would say it is not just one of the most difficult in marketing decisions but also it is one of the really essential element in customer acquisition and retention.

In other words pricing plays significant role in achieving customer satisfaction and loyalty ⁽²⁾.

And we all know, considering present day market complexity, change, immense increase in competition that resulted in increase in customer choice, homogeneity of brands etc, customer satisfaction and loyalty is not only essential to compete and survive but is the only way to lead and thrive.

Not to mention the famous Pareto Principle that 80% of your profit comes from 20% of your customers. In other words 80% profit comes from your loyal customers and loyal customers aren't many, you know that right ?!

So what I am going to do today is to provide, an easy, comprehensive checklist/approach that will help Managers, Marketing lovers, Business Graduates and most important of all, Entrepreneurs to set right price to achieve effective price satisfaction (Price Satisfaction: When your target market is satisfied with your offer price and is willing to pay accordingly) which would consequently result in customer satisfaction & loyalty.

Remember! This article is about achieving price satisfaction, which means target market satisfaction with the price, it doesn't suggests or overlooks the traditional methods of pricing or neglecting the overall production cost, unit cost etc when it comes to pricing.

Okay let’s move to “how to achieve price satisfaction ?”

Price Satisfaction

To deliver price satisfaction to your target market you need to consider your product/service price from the following angles.

      1.      Relative Price
2.      Price Reliability

3.      Price Confidence
4.      Price transparency

5.      Brand Worth/Image VS Price 
6.      Veblen Effect (in case of luxury items/services)

Relative Price

It simply means considering and comparing your price to that of your competitors. Now it doesn't mean that you should charge similar or lower price for your product/service (compared to your competitors) but it means you have to consider your price not only in terms of your competitors price but also in terms of competitors price reliability, price confidence, price transparency, brand worth, Veblen effect (in case of luxury items/services).

In a nutshell you need to outdo your competitors in all these areas with significant difference. So that it makes you (brand) stand out.

You may also like to read Small Business Competitive Strategy Focus

Price Reliability

Means how much your offering, brand is reliable when it comes to hidden costs, unexpected price changes. Is it better than the rest (competitors) or is it on the same level or worst.

Price Confidence

Price confidence means, how much your target customer trusts your pricing, consider it favorable, or what is it that is making it less favorable, less trusty etc.

What you need here is to find your brand position in terms of price confidence among your competitors, if you are on the top, then you are doing great, if you are in middle somewhere, well then you need to do better and if you are at the bottom then you need to change your overall price strategy.

Lower price confidence could be the result of many things like weak brand image, product/service quality, excessive or unjustified pricing etc etc. Therefore you need a thorough qualitative and quantitative research of your target market to identify the exact reasons for lower price confidence, lower price reliability, lower price transparency.

Price Transparency

When you provide clear, complete, current, precise summary of the quoted price for a service, group of services, product or bundle of products to your target market. Such price transparency is essential when the value offered is an intangible one or when the value offered involved many products/services.

If your customer doesn't feel right, satisfied, doesn't find (the price) it reasonable after taking your services/products, though he/she would pay but that “feeling” of being cheated, overcharged.. would never let him/her come back to you ever again.

What you need to do in such cases is to avoid such feelings by achieving price transparency. The more you have it, the more they will trust you and the more they will come to you when they need what you offer.

Brand Worth/Image VS Price

Means what price will be sufficient, reasonable considering your brand worth/image for instance if you are charging way too high compared to your brand worth/image then you are actually not earning maximum as most of your target customers do not consider your brand.

Likewise if you are charging low compared to your brand worth/image still you are earning low even though maximum numbers of people are buying your product/service.

So what you need is to find that optimum range for your price in terms of your brand worth/image.

For instance you conduct target market research, you offer an unbranded product/service to find out the best price (the price at which majority is willing to buy) from your target market perspective for that unbranded product/service.

Again conducting the same study, only this time you have to add your brand to the product/service in all necessary ways. And then calculating the best price (the price at which majority is willing to buy) from your target market perspective.

And after conducting both studies, for instance you achieve a difference of 30$ that 30$ is the brand worth/image that you need to charge from your target market to earn maximum.

Veblen Effect

Which means the perceived value of a product increases as its price grows; exclusivity breeds excitement (only for luxury items/services).

What you need here is to determine if your offering (product/service) comes in luxury items, if so, then you need to price your offering as per Veblen effect. Here is a brief but comprehensive article on how to price luxury items.

Over to you guys!

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References:

1.     Dolan, R.J. and Simon, D. (1996), Power Pricing: How Managing Price Transforms the Bottom Line, The Free Press, New York, NY.
2.     Martin-Consuegra, D., Molina, A. and Esteban, A. (2007), “An integrated model of price, satisfaction, and loyalty: an empirical analysis in the service sector”, Journal of Product and Brand Management, Vol. 16 No. 7, pp. 459-468.