Pricing in a competitive world

Stuart Hartley

Price is a key marketing tool

−It is the odd one out in the marketing mix

−It’s a revenue earner rather than a cost

−Setting prices is therefore an essential skill

−Too higher price might lead to lost sales

−Too lower price losing margin

−Price however should not be set in isolation

−It should be set with other aspects of the marketing mix to achieve overall superior customer value

Cost and value

− Knowing the difference between cost and value is important

The cost of your product or service is the amount you spend to produce or deliver it

The price is your financial reward for providing the product or service

The value is what your customers believe the product or service is worth

Creating value

Price and Quality relationship

• Price often sends quality cues to customers

High

High

Low

Low Price

Quality

Price and Quality relationship

High

High

Low

Low Price

Quality

Aldi

AsdaTesco

Sainsbury

M&S

Waitrose

How have you set the prices for your

products / services?

How do we price?

Pricingmethods

Cost

MarketingCompetition

• Cost Orientated Pricing

− Full cost pricing

−A way of including all the costs that are directly and indirectly associated with the product or service

− Increase cost with decreasing sales!

−Sales are estimated before a price is set

−Focuses on internal costs rather than customers and customer value

− It does however give an indication to the minimum cost to make a profit

Year 1

Direct costs £2

Fixed costs £200,000

Expected Sales 100,000

Cost per unit

Direct costs £2

Fixed costs £2

Full costs £4

Mark Up 10%

Price plus profit £4.40

Year 2

Expected sales 50,000

Cost per unit

Direct costs £2

Fixed costs £4

Full costs £6

Mark up 10%

Price plus profit £6.60

Direct cost pricing

− Price does not cover full cost

− Therefore a company could be making a loss when selling a product

− More useful when selling a service which cannot be stored

−E.g. hotel rooms or flight seats – if they are unused that income is lost

−Therefore getting any contribution towards the general overhead is sensible.

−The risk to this is that the customer becomes used to purchasing in this way or those that have paid the full price complain.

− Direct costs indicate the lowest possible price at which its sensible to take business if the alternative is to leave rooms or seats empty

− Can only be used in the short term as there is no way of recovering in direct costs in the long term

Competitor orientated pricing

− Focus on the competitor rather than the costs

− Going rate pricing

− In situations where there is little product differentiation a producer may have to look at going rate pricing.

−Goes against traditional marketing theory which seeks to deploy differential advantage, such as delivery time, after sales service and price accordingly.

− Competitive bidding

−Sealed unseen bids from other companies

−Used in both public (price plus quality) and private (usually just price) sectors

Competition

• At the very least you should know who your competitors are and what they charge

Immediate competitors,

e.g. Blockbusters

Technically similar products

Secondary competitors,

eg. Lovefilm / Netflix

Different products solving the same

problem in a different way

Tertiary competitors e.g.

Sky Movies

Different products solving or eliminating the

problem in a different way

Market orientated pricing

− Much more difficult that cost or competitor orientated pricing as it takes into account a wider range of factors

Market Orientated

pricing

Marketing

strategy

Price /

quality

relationships

Product line

pricing

Negotiating

margins

Costs

Competition

Explicability

Value to

customer

Market orientated pricing

• Marketing strategy

− The price should be set in line with marketing strategy

− Danger is that price is set in isolation with no reference to other marketing decisions – product benefits, positioning – the general marketing mix

• Value to customer

− Price should be accurately keyed to the value to the customer

− The more value that the product or service gives over the competition the higher the price that can be charged

− Think about how you might be able to demonstrate and communicate this value to the customer

• Price – quality relationships

− Previously considered

− As price increases there is a perception that quality should increase and vice versa

Market orientated pricing

• Product line pricing

− Where will a new product fit into the existing products that a company offers

−Range Rover launching Evoque needed to price position it against existing Range Rover, Freelander, Discovery

• Explicability

− How easy is it to justify a higher price?

− How easy is it to explain and demonstrate the differential benefits?

Negotiating margins

− In some instances customers expect a price reduction

− Price paid is therefore very different from list price

− The difference can be accounted for by

−Order size

−Competitive discount

−Fast payment discount

−Promotional allowances

− Many organisations therefore build in a negotiating margin

Pricing new products or services

−Positioning – the choice of target market and the creation of differential advantage will have a major impact on the price

−Each target market will have a different value offering and therefore a different potential price

−Where there are multiple attractive target markets modified versions of the product and / or service should be offered with different value statements and different marketing; and most importantly different prices

−Launch strategies

−Should be used with other elements of the marketing mix

Positioning

• Positioning is the choice of:

− Target market – where we want to compete

− Differential advantage – how we want to compete

• The objective is to create and maintain a distinctive place in the market for a company or its products

Successfulpositioning

Consistency

Credibility

Clarity

Competitiveness

• Clarity

− The positioning idea must be clear in terms of target market and differential advantage

− simple messages are clear and memorable

• Consistency

− People are bombarded with messages daily

− To break through this noise a consistent message is required

− This includes ensuring benefits, language used, brand, colours are all consistent

• Credibility

− The differential advantage chosen must be credible in the minds of the customer

−Attempting to position a Lada as an exciting sports car by showing it charging through dirt tracks failed because of the lack of support between the image and reality

• Competitiveness

− The differential advantage must have a competitive edge

− Offer something to the customer that the competition is failing to supply

− For example

−When Apple launched its first Ipod the ease of use and the design of the product where its competitive edge

−When competitors made lower cost units Apple then launched the Ipod shuffle to compete – it still competed on design and ease of use however it was positioned to directly compete with lower cost competition

Pricing new products or services

High

High

Low

Low

Promotion

Price

Rapid Skimming

Rapid

Penetration

Slow Skimming

Slow

Penetration

Premium products

Gradual entry

Premium products

Quick entry

Pricing Tip

Complicated price points and conditional discounts

lead to consumer confusion, anger and loss of business.

If a prospect cannot understand your pricing

they will likely walk away

Be simple and clear

• Technology allows for

− Dynamic pricing

− Easier and closely monitored promotional pricing campaigns

−Orange Wednesday, Pizza Express

− Loyalty cards / loyalty bonus

− Contactless payments / mobile payments

• Non technology based

− For example

−Promotional pricing

− Boots 3 for 2, Waterstones

−Psychological pricing

−Referral bonuses

−Subscriptions

Innovation in Pricing

• No matter what pricing tactic you use you are establishing your basis of value to the customer and your competitors.

• The customer has to see the relative value of the product or service and the price needs to match that relative value.

• You therefore need to make sure you are not charging too much or indeed not charging too little

High Price versus Low Price

High Price Segments Low Price Segments

Product provides high value Only feasible alternative to charge low –customers are not cash, no differentiation

Customers have high ability to pay Requirement to achieve market presence or domination

Consumer and bill payer are different Can afford to make money later

Lack of competition Can make money elsewhere

High pressure to buy There are barriers to market entry

Pricing Checklist

Know your real costs for each product /

service

Work out the minimum at which its

worth selling at all

Find out from your customers what each product or service is

worth to them

Check your competitors prices

If their price is lower than your worth selling at price THINK AGAIN

Be prepared to make range and pricing

changes

Keep checking that you price is right

SALES

Sales and Selling

People don’t buy products – they buy

solutions to their problems

You have nothing to sell but benefits

Awareness

Interest

Desire

Action

Attract

Engage

Nurture

Engage

Remember the journey

ModernVsTraditional

Customer doesn’t know me

Customer has heard of me

Customer starts to listen

Customer buys

How to sell anything

Be Clear about the benefits

Plan your selling

before the meeting

Ask questions and listen

Empathisewith the customer

Welcome objections

Ask for the sale

Leave as soon as you

can after closing a

sale

Do we know what we are selling?

Features Promises

Business Pain Benefits

FeaturesSpecific details about the product or service

Promises

Promises can be made about what benefits the features could deliver

Business Pain

The quantifiable business drivers that relate to issues such as cost, income, profit margin, reputation etc

Benefits

Specific benefits from the promise list that relate to the prospect and their business pain

Features Advantages Benefits

Buy groceries online Saves going out to supermarket • Makes supermarket shopping possible• Don’t face the ordeal of shopping with

toddlers• Keep your limited leisure time for

yourselves

Twenty four hours a day seven days a week

Can shop outside of normal hours • Shop when feel like it• Concentrate when kids are asleep• Sort out at weekend with no pressure

Remembers your previous list Can make amendments rather that starting from a blank sheet

• Tend to need the same things• Head start to make the job quicker• Save lists for different occasions

Total price clear before getting to till Useful for budgeting • Save money –limited income• Possible to delete a few treats • Know exactly what’s going on the credit

card

Selling the benefits

What are your features and benefits?

Plan your meeting / phone call

• Research the customer both themselves and the business they are from

• Think about the balance of “power”

− Does the customer need the product more than you need to sell it?

• What do you want to achieve from the meeting?

• What are you prepared to give away?

Ask questions and listen

• A good sales person is a great active listener

• Listen for buying signals

− How much is it

− How long will it take

• Listen for objections

− Its too expensive

− I don’t understand how it can help

• Ask the right questions to find out what specific benefits may matter to the customer

Ask for the sale

• More often that not a nervous seller will miss buying signals.

• As soon as you start hearing buying signals consider how you can frame a question which asks for the sale:

− Shall I put you down for a dozen?

− When are can we start?

• If they are happy DO Not continue with your sales presentation.

Sales Pitch

Prospect Pain / Capability Gap

• Many Companies are trying to grow and are experiencing difficulties with lack of finance, ability to innovate or the internal capacity to deliver

What’s my role

• My role is to help companies to overcome these barriers by providing the support they need either in the form of workshops or one to one coaching

Why it’s unique

• What’s different about this is we work with a wide variety of high quality coaches with a number of different specialisms

Try it!!!Try and sell your

services

Self reflection

• After every sales visit ask

− Did I achieve my objective?

− What have I learned about this customer that could be useful if a subsequent visit?

− What have I learned from this customer that has nothing to do with his business?

− Even if successful, how could I have made this visit better?

NEGOTIATION

What is negotiation?

•Simply put...

−the process of getting what you want from another person.

•The truth is we negotiate every day, everyone in their every day lives is a negotiator.

−Children negotiate with their parents for things they want.

−Spouses negotiate with each other over things they should buy or do this weekend eg. go to the funeral, the wedding or take the children to their friend’s party?

−Subordinates negotiate with their bosses over deadlines.

−Workers negotiate with their clients over services they can offer them.

Sales negotiation

•Sales negotiation can be a formal event at a specific time and date or it can be ongoing at different points in the sales process.

•As a sales staff you are seeking a mutually beneficial relationship with your prospects and clients, not something that benefits only you or them.

Why do you need to

negotiate with customers in

the first place?

Because of Customer Attitudes

• A customer’s attitude toward your product or service generally falls into one of four categories.....

− Objection

− Indifference

− Skepticism

− Acceptance

Customer Attitudes

Acceptance : Customer

agrees with your benefits and has no negative

feelings toward your product

Skepticism :Customer is

interested in a particular

benefit, but doubts whether

your product can really

provide the benefit

Objection : Customer displays

opposition to your product

Indifference:

Customer shows a lack of interest in your

product because of no perceived need for its benefits

S0 why do you need negotiation skills?...

To win more Customers and improve profits for your organisation.

Before negotiation begins...

• Avoid negotiating unless you have had an opportunity to fully present your products and services

• Understand the objections raised by your prospect and identify what your prospect or customer’s main points of interest may be based on these objections

• Be prepared to illustrate how your offering will benefit them and quantify the value they will get (if possible)

• Be prepared to be patient (which can lead to higher trust between you and your prospect)

• Be confident in the value your product or service will provide your prospect

• Be prepared to work toward a solution that works for both you and your prospect

• Know in advance at what point the negotiation is no longer beneficial to you and your organisation and be prepared to walk away

During negotiation...

• Use open ended questions to confirm your understanding of their needs.

• Be prepared for tactical responses from prospects and customers – such as exclamations after you explain the terms of your service (eh, aba! etc) or silence – don’t react and instead respond with more questions

• Don’t rush to fill pauses with more talk – be comfortable with moments of silence

• Listen

• Be prepared to make slight adjustments for your prospect if possible eg. Adjust the product/service offering, loan payment terms etc.

• Try to identify small things you have both agreed on to help develop positive momentum – summarize these agreements periodically

After the negotiation...

• If you are able to make a sale…

− Summarize verbally and/or in writing the details of what you and the customer have agreed on as the terms of the service.

− Thank the customer/ prospect for their time and reinforce the purchase decision

− For your next negotiation, review the points that seemed to help move the negotiation process forward – study them, know them, use them

• If you did not make a sale…

− Sincerely thank the prospect for their time

− Avoid appearing annoyed or disappointed

− Give the prospect an “out” or an opening for them to come back to you/your organisation in the future (have this statement prepared)

− For your next negotiation, review the points that seemed to prevent the negotiation process from moving forward – study them, know them, and act accordingly

Common mistakes to be avoided in negotiation

• Inadequate preparation

• Use of intimidating behavior

• Impatience

• Loss of temper

• Talking too much, listening too little, and remaining indifferent to body language.

• Arguing instead of influencing.