WHY DO MARKETERS NEED TO PAY MORE ATTENTION TO THEIR PRICING STRATEGY? • The right price can make all the difference: price too low and you miss out on profit, price too high and you miss out on sales. • Understanding what you can charge isn’t as straight forward as asking consumers what they are willing to pay: • Consumers want something for nothing • Consumers don't really know how much a product or service is worth • Consumers can’t gauge what a fair price to pay is • William Poundstone, the author Priceless: The Myth of Fair Value states: “People tend to base price on vague recollection of what they have seen or heard and are mainly sensitive to relative difference, not absolute price”. • Resultantly, consumers are always assessing the relative price value trade-off against other comparable options.

1. April 16, 2013
¥ $₹ €
₹$ € ¥
€ £ ₹$
₹$ ¥ €
€ £ $ ₹
£ $ ₹
£
¥
P
PAYING
ATTENTION TO
YOUR PRICING
STRATEGY
PAY$
Author: Shamvir Singh
Email: Ssingh@northstarhub.com

2. April 16, 20132
WARNING!
MARKETERS NEED TO
PAY MORE ATTENTION
TO THEIR PRICING
STRATEGY
The shake-up of the economy:
 75% of all UK consumers are looking to curb spending in 2013.
 The contraction of the UK economy has made consumers more
price sensitive.
 Given the crowded brand-scape of many UK consumer
sectors, consumers are now spoilt for choice.
 This has made it harder for brands to standout and appeal to
consumers.
 Furthermore, given increased competitiveness, price is more
important than ever.
WHY DO MARKETERS NEED TO PAY
MORE ATTENTION TO THEIR
PRICING STRATEGY?

3. April 16, 20133
WHAT YOU CAN CHARGE?
 The right price can make all the difference: price too low and you miss out
on profit, price too high and you miss out on sales.
 Understanding what you can charge isn’t as straight forward as asking
consumers what they are willing to pay:
• Consumers want something for nothing
• Consumers don't really know how much a product or service is
worth
• Consumers can’t gauge what a fair price to pay is
 William Poundstone, the author Priceless: The Myth of Fair Value states:
“People tend to base price on vague recollection of what they have seen or
heard and are mainly sensitive to relative difference, not absolute price”.
 Resultantly, consumers are always assessing the relative price value trade-
off against other comparable options.

4. April 16, 2013
HOW DO CONSUMERS BEHAVE
TOWARDS VARIOUS PRICING
OPTIONS?
Dan Ariely, the author of Predictably Irrational, supports Poundstone’s idea. Ariely
describes how various pricing options can affect consumer’s uptake of particular
service/product packages.
Ariely conducted an experiment where he offered two pricing scenarios. The first
scenario offered three pricing options for The Economist:
Option A - Print only at $59
Option B - Web only at $125
Option C - Web and print both at $125.
The experiment was conducted on 100 MIT students. Initially, 16% chose option A
(priced at $59) and 84% choose option C (priced at $125). No students chose option
B.
The second pricing scenario removed option B and was re-administrated to another
100 MIT students.
The uptake for option A increased from 16% to 68% (the cheaper print only option).
It may seem illogical that removing option B (a price option that no one chose)
would change consumer preference. However, option B served a purpose in scenario
one by acting as a price decoy.
Ariely deducted that consumers have difficulty in comparing the relative price value
trade-off of two very different options. However, if two options provided are similar
(e.g. pricing such as options B and C), it becomes easier for the consumer to
understand the relative price value trade-off.
Option A
PRICING SCENARIO 2
% stating preferred subscription choice among the 2 offers given
16%
84%
0%
Decoy
pricing
Web +
Print
Option C
Option C (Web +
Print) is the most
preferred option
vs. option B & C,
with 0% choosing
option B
PRICING SCENARIO 1
% stating preferred subscription choice among the 3 offers given
68%
32%
Print
only
Option A Option B
Web
only Similar
product
pricing makes
it easier to
compare the
relative price
value trade-off
Print
only
Option C
Web
only
Dissimilar
products &
pricing makes
it difficult to
compare the
relative price
value trade-off
52% drop in those
selecting option C vs.
pricing scenario 1 when
the decoy price option
is removed

5. April 16, 2013
WHAT DOES THIS MEAN FOR
MARKETERS?
Author: Shamvir Singh
Email: Ssingh@northstarhub.com
$
₹
£
€
Marketers need to:
 Monitor competitors prices to avoid become a ‘price decoy’.
 Understand that consumers are not price makers.
 Understand that consumers compare and contextualise the
price value trade-off of your product/service offerings against
that of competitors.
 When researching price, simply asking “how much would you
pay?” will not garner the most appropriate data.
 Instead, consider researching price through trade-off exercises
such as conjoint.