Price Integration: Should You Focus on Value, Price, Quality, or Quantity?

by | Feb 8, 2019 | Marketing

Looking for a one-word answer? If only! As you might have guessed: It all depends. When considering price integration, it’s important to remember that products and services must meet minimal standards based on each specific circumstance. Simultaneously, risks need to be taken as you strive for an exceptional customer experience. As you develop your own strategy for price integration, consider the following questions:

  • What are the differences between a good quality meal at a reasonable price vs. an expensive gourmet meal with special ambiance?
  • When it comes to gas, for how much of a savings and to what distance are you willing to go out of your way to purchase cheaper gas rather than utilizing your local station?
  • How much do you buy on impulse vs. shopping for specific needs and taking time to search/compare prices before purchasing?
  • How important are image, brand, and experience in your purchase decisions?  
  • Do you prefer being unique or do you tend to buy the same old thing? (i.e. Do you stick with what you know—say, hamburgers or pizza—as opposed to trying new things?)
  • Provided the quality meets acceptable standards, do you value quantity or quality?

These questions illustrate how varying factors take precedence in different situations. Therefore, it’s essential to have a comprehensive grasp on what it is you’re offering while also fully understanding what your consumer views as important.

Before we move on, let’s define some key terms:

  • Value is the perception of the utility relative to the cost.
  • Price is the amount of money per unit or total that a consumer spends.
  • Quality of an item refers to the actual craftsmanship or durability of the item or service.
  • Quantity, of course, is how many of an item you get for the price.
  • Cost is not exactly the same as price. Cost can also refer to the amount of effort involved to obtain the product/service or the “opportunity cost” of missing out on some other deal or experience by buying your product.

Here are a few key things to consider when it comes to price integration:

  • Don’t try to be all things to all people—you will probably fail at most of them. In some places, for example, customers view the most important aspects of ordering a cup of coffee to be speed, quality, and freshness. In other places, customers value the conversation that comes with the service.
  • Product definitions keep changing. Airlines add new fees, restaurants bundle meal offerings, and warrantees get updated in both price and characteristics. One of the most critical aspects of pricing, often considered from more of a cost perspective, is the product or service offering itself.
  • What is your competition doing and what do your customers expect? For example, warehouse clubs thrive by selling multiple units at lower prices per unit while other industries (think candy bars and airfare) raise prices by creating the ever-shrinking product/offering. Another factor to consider is shipping fees—free shipping is virtually expected with most online purchases.
  • Logistics, sourcing, and distribution efficiencies are critical factors in your marketing efforts. They may be used to reduce costs for you and lower prices for your customers. For example, sharing resources like Amazon, Uber, Air B&B, and Grub hub can eliminate complexity and create efficiencies . Similarly, shipping times, delivery methods, using direct shipping, etc., can affect consumer perceptions and satisfaction.
  • Ultimately, the CONSUMER determines the effectiveness of your offerings and whether or not your offering has the characteristics they’re seeking.

Discussing price integration can often feel a little like asking the age-old question, “What came first: the chicken or the egg?” However, when factored in together, value, price, quantity, and quality will determine what the weakest link is in any price integration strategy. Each aspect deserves singular attention at specific times, in various circumstances. But try to avoid exclusive focus on any single element for too long—it may be devastating to your business. Knowing your strengths is great, but not recognizing your weaknesses can ruin you. In order to succeed, it’s crucial to identify what you do best and how you can effectively make your product/service stand out from the rest.

Interested in a FREE business consultation? Email or call and we’ll set up a time to discuss the strengths and weaknesses of your price integration strategy.  

bshlenksy@startupconnection.net  914-632-6977 

With a PhD from the Sloan School of Management at M.I.T., Dr. Bert Shlensky prides himself on his customized approach to help each client address their specific business needs. He’s mentored a few thousand clients at Score and his own practice, grew Sure Fit products from $50 million dollars to $150 million in, was President of WestPoint Pepperell’s Apparel Fabrics Business, and headed the $400 million Culet Shirt Group. He knows how to take a business to the next level and can help you lead your company to greater profitability and success.  Visit StartupConnection.net today!

Ideas for More Effective Pricing

by | Feb 1, 2019 | Marketing

How Do I Know I Have the Right Price?

Pricing products or services used to be simple and straightforward. Production and distribution techniques have changed dramatically and become more efficient.  This has resulted in great value and pricing opportunities for huge retailers like Costco and Amazon. Online store price changes occur instantaneously, with immediate visibility and accessibility to consumers.  There is more diversity in consumer pricing behavior today.  The high-end consumer who buys $1,000 shoes in better department stores visits merchants like T.J. Maxx and Amazon to shop for unbranded commodities at a 20-40% discount. Here are some effective pricing strategy ideas to consider for even small businesses:

Analyze bundling and unbundling.

To coin a phrase, “Do you sell it your way or our way?” Bundling — if done correctly — can both improve a product offering and satisfy the customer, such as selling complete meals or LEGO sets. Bundling can also be a way to increase profit by adding elements such as high margin warranties to low margin items like electronics. Bundling can also enhance sales and value, such as offering extra services in places like fitness centers or nail salons. 

Unbundling has also become popular. Spirit Airlines offers no-frills fares and charges for every service to maintain perceived low prices. Generic brands represent another form of unbundling by charging lower prices in exchange for lesser branding.

Pricing psychology can also dramatically affect your image. 

After you have worked long and hard to develop a rational and effective pricing strategy consumer can react strongly to psychological presentations. These can include practices such as: pricing at “$9.95” (instead of $10.00), eliminating the actual dollar sign, unmonitored purchase limits, offering some items for free, selling two for $9.95, or changing colors and font sizes.

Varying Prices can increase volume and Increase Profits.

One of the most successful efforts by sports teams and airlines is variable pricing.  The simplest thing is they have ranges in seat prices by location, game or time. The biggest change is in varying prices by time, seasonality, or holiday, to develop revenue in off peak periods. While these examples can utilize sophisticated and expensive computer models, the most noted model is very simple. Specifically, the early bird special in Florida has been around as long as I can remember. 

“Free” is not a dirty word  

The concept of “Freemium” is more than a business model.  It’s also a pricing strategy.  Offer a free product or service, then offer ‘pay-to-upgrade’ features, and you have a Freemium strategy. Remember that companies like Google and Facebook were built on free offerings for entry, followed by a host of upgrades and “for pay” services. Ancillary aspects of the Freemium strategy include samples, blogs, demonstrations, contributions to charities, etc. — these can all create awareness and build long term volume at little or no initial cost.  An older variation is to basically “give away razors and printers” to sell the “blades and ink.”

Consumers Love Promotions

Contrary to some popular opinion, “promotion” is not a dirty word and the use of promotions is not synonymous with diluting the value of your brand. You have many opportunities to find new ways to increase volume today, including pop up shops, selling through Amazon or Wal-Mart marketplace, seasonal programs, and bundling. 

Manage your Product Mix  

Essential to the process of effective pricing is to understand the entirety of your product mix. Getting people into the store with loss leaders is a proven strategy. Seasonal retailers use promotions like “back-to-school” or national holidays to drive traffic to the store (or website), where customers will load up on the non-sale items. Most important have the items customers want in stock and avoid items or products that don’t sell like odd colors, sizes or contents  

Consider Service and Quality After the Sale

Many customers will opt to stay with a company in large part because of the quality their service after the sale. Some other factors that can affect price decisions are quality, availability, selection, return polices, and guarantees. When you have a small business, you have the flexibility to look your customer in the eye and take that extra step to make sure your customer is happy. A key example is that restaurants and retail stores can suffer major declines if customers have to wait too long.

Use Efficiencies of Logistics, Sourcing and Distribution

Another aspect of effective pricing strategy that can provide major competitive advantages has to do with logistics, sourcing and distribution efficiencies. These may be used to reduce costs for you and prices for your customers.  For example, Amazon is able to employ such efficiencies to operate on a 15-20 percent margin while traditional retailers have to work on 40-50 percent margins. Similarly, shipping times, delivery methods, using direct shipping, etc., can affect pricing and profits

Final Words

Entrepreneurs who recognize that traditional pricing models no longer apply in today’s world of business will be better able to price their goods and services appropriately in this “Brave New World.” Effective pricing strategies vary widely depending upon the factors we have discussed. The most important suggestion from this blog is to consider alternative pricing tactics and consider the entire pricing package. You must aggressively manage and innovate your entire pricing package rather than simply reacting to short-term changes in the market or competitive pressures.

I’d love to hear your examples of how managing pricing has enlarged your perspective without harming your brand. You can find me at Bshlensky@startupconnection.net  or 914-632-6977

Dr. Bert Shlensky earned a PhD from the Sloan School of Management at M.I.T., mentored a few thousand clients at Score and his own practice, grew sure Fit products from $ 50 million dollars to 150 million in sales including $ 60 million of direct internet sales, was President of WestPoint Pepperell’s apparel fabrics business and headed the $400 million Culet shirt group. In short, he knows what works and can help you lead your company to greater profitability and success. StartupConnection.net provides small business owners real solutions to real problems.  Contact us today!