Category: Pricing

Anchoring

On By ashleyfausIn PricingLeave a comment

I’ve been reading a lot of negotiation blogs on Forbes after my negotiation class last semester, and anchoring is one of those funny human psyche things that I find interesting. Anchoring is basically throwing out a number to set the expectations in a negotiation. The trick is to find a number on the high end, but not so high that it’s too ridiculous to even consider. This is true in a non-negotiating context as well, and the situation on gas prices got me thinking about the anchoring phenomenon.

Gas prices have been falling lately (YES!), down to the low, low price of ~$3.10/gallon in Texas. You all actually think that price is low, don’t you? I do… and at least one Facebook friend does too! Her status update read, “Gas for $3.05? Yes, please!” I was in California over the weekend, where gas was ~$3.90/gallon, so the $3.10 actually does seem pretty cheap. Notice what I did there? I told you the “low, low” price, and gave a reference point considerably higher. My language and examples, combined with your own experience with high gas prices from 2009-2009 (we’re talking nearly $4/gallon in Texas, that’s RIDICULOUS!), and you think $3.10 is pretty stinkin’ reasonable.

But what if I told you how much gas cost when I first starting driving? When I was 16, I managed to get gas for .89 cents… EIGHTY-NINE CENTS per gallon. On average, I could fill up my Honda Civic for .99 cents/gallon, for a total of $16 per tank. Now how do you feel about that $3.10/gallon gas price?

It’s interesting, because I fought the, “less than $3 gas is cheap” mentality for a long time, holding on to my .99 cent price-point far longer than I should have. I had anchored myself at less than a dollar, and I wasn’t having any laughable numbers above that price. The problem is, I’m a price-taker when it comes to gas, so digging in my heels about paying more than a dollar… or two… or three, was useless. I’ve finally re-set my anchor point around the $3.50 mark, so I’m actually quite happy to pay $3.10.

As a marketer, you have to understand and manipulate this anchoring principle. Times change, perceptions change, and margins change, but humans still hold on to some kind of anchor about price. This is why pricing a product or service during a a launch is so critical. Too high, and you’ve priced yourself out of the market, but too low, and people might think the quality is cheap. Too high, and you’re stuck giving discount after discount until you reach the true market value of the item, but then you’ve trained your customers not to buy at full price (see my reluctance to purchase at JC Penney with their new pricing scheme). But, too low, and your margins are shot, but raising the price makes customers feel like you’re just being greedy, even if they would have been happy to pay the price originally.

A Deal is Not a Deal

On By ashleyfausIn Advertising, Pricing, SellingLeave a comment

As a marketer, you’d think I would love taking advantage of promotions and deals in stores, right? I mean, I’ve bought several daily deals online, but in general, I’m very skeptical of deals. My husband and I are quite frugal, so I’ve taken to looking at the per-unit cost on items, particularly at the grocery store. The fashion bloggers have taught me to consider a piece of clothing on a cost-per-wear basis, which has changed my whole outlook on purchasing clothes!

Sometimes, though, a deal is not a deal. I’m not talking about a blatant higher-cost-per-unit, or an absurd payback period. I’m talking about the fact that you would never buy it full price because you don’t need it. So, if you don’t need it, why would you buy it on sale? I’ve seen people buy clothes because they’re on sale, even though the item doesn’t fit right, or the color is wrong. “But it was on SSAAAALLLLEEEEE!!!!!!” Or, purchasing creamer or cereal in a larger size because the unit cost is lower than a smaller size, but you don’t really like the creamer or the flavor of cereal. Thus, the creamer will spoil and the cereal will go stale before you manage to force yourself to use them up, meaning you’ve wasted $2 instead of $1.25.

A deal is not a deal if you planned to spend $0, and you ended up spending $10 instead of $20. Your budget didn’t exist in the first place, so no amount of discounting or mark-downs can compete with zero. I think the best way to combat this, is to ask yourself if you would ever buy that item or a similar item full price. I look terrible in yellow clothes, so I would never purchase a yellow item at full price. Thus, no amount of sale can persuade me to purchase a yellow item. I love peppermint coffee creamer, and I regularly buy the big bottles at full price. So, if they go on sale, I have no problem stocking up on them, because I know I’ll drink them eventually. I’m even willing to switch brands or make substitutes to take advantage of a sale, but only if I already needed the item in the first place.

Next time you see a sale, control the impulses! Remember that if your budget is $0, that’s the cheapest sale you’ll find, and don’t succumb to anything more than your budget allows! (in this case, it allows NOTHING, because you don’t even WANT that product, let alone need it!)

Carwash Pricing

On By ashleyfausIn Pricing1 Comment

I’m gearing up for an insane week at work and school, so the posting will be a little spotty (kinda like last week, sorry about that!). However, I had to take a moment to write a quick post on an interesting pricing scheme that I saw at the carwash the other day.

There was a sign advertising “Unlimited Monthly Car Washes: Convenient! Save Money! Keep Your Car Clean!!!!!!! Starting at just $30 per month!!!!!!!!” When I came to the price, I was immediately trying to work out how many washes I’d have to get for the pass to be more worth it than the $4 Express Wash that they offer all the time. I’d have to get 8 washes! Now, maybe these washes with the pass are more extensive than the $4 Express Wash, but it seems like this pricing is off, at least if the consumer is smart. Who gets their car washed twice per week? Obviously, the goal with any “unlimited” pricing is to make the price high enough that the person doesn’t get the full use out of it, so the company makes money because customers have effectively paid for a car wash every day, but only end up getting their car washed once a week (or less, if you’re me). They’re hoping customers will see $30, and equate it with a $1 car wash. While this calculation was my first instinct (who doesn’t like simple math, right?), I immediately noticed that something was off about it. Now, I’m not the first person to want to crunch the numbers, but simple division? Even I can figure out that I’m getting jipped if I buy the monthly pass!

So to all the marketers that think their fancy pricing scheme will work, you gotta make it a little less obvious that you’re trying to make sure I don’t get the full value of my purchase! Make sure you look at the cost per use AND the frequency of use before buying “deals” like monthly passes.

The Swing Vote

On By ashleyfausIn Advertising, Branding, PricingLeave a comment

I’ve been talking a lot lately about how marketers using intel makes me happy, but then I started thinking about who the marketers REALLY want. The information about who is buying your brand, how much they’re buying, and how to keep them buying is definitely interesting, but I’d say it’s equally interesting to see who’s not buying your brand. And, not just the hardcore brand-haters, but the wishy-washy people. The people without a pattern. They’re the swing voters that flip-flop based on price, convenience, trends, and any other fickle variable that suits their fancy that day.

It’s not worth my time as a marketer to convince a die-hard Pepsi drinker to switch to Coke. It’s also not worth my time to keep coddling the die-hard Coke drinker, because, unless I do something completely stupid, like introduce “New Coke”, there’s no way I’m going to lose you. So, the really interesting segment to target, is the swing voter. When considering promotions, I need to seriously consider the cannibalization effect. I’m not looking to give $2 to someone that will already buy my product, I’m looking to attract a new customer that will hopefully become a loyal customer. I’m willing to take the $2 loss to get this new customer’s future full-price purchases. But, if I know this person is a swing voter that refuses to commit, do I really want them anyways? Is it worth the $2 loss to attract a customer that will drop me as soon as my competitor offers a $2 coupon?

So, we know we don’t want people who are willing to pay full price to start using our coupons, and we know that we probably don’t want to waste a coupon on a swing voter. Who do we actually want to spend money to attract? This is where the brilliance of parent companies comes in. They own a brand for every customer segment! There’s some people that always use a coupon, and others that only shop at one store. If you’ve got both the one store and the coupon, you’ve increased your market share and your bottom line. Of course, there’s always a few caveats. Are you going to be the best of the best in one thing, or average across all categories? It also goes back to the question, “Do I really want ALL customers?” Many companies think that a dollar is a dollar, but marketers know that customers come at a cost. Swing voters come with a very high cost, since you’re constantly having to wave the shiny object to keep their attention.

For all the posting happiness about what the data tells me, I’ve gotta admit that what the data DOESN’T tell me is equally fun to play with!

JC Penney Downs Discounts

On By ashleyfausIn Branding, PricingLeave a comment

 

I felt great about purchasing these pants prior to the new pricing.

Pants: JC Penney

T-shirt: Target

Blazer: Target

Scarf: Target

Flats: Payless

Like the outfit? Click here for more details!

 

A classmate of mine asked for my take on the new JC Penney strategy, and after a discussion with my dad about the strategy, I decided to do a little hands-on research. JC Penney is the king of huge discounts, all the time, on all their items… at least, they were. This article details their new strategy to drop prices across the board to an “everyday value” price. They’re also moving to whole numbers, instead of the $19.99 or $29.99 prices, the tags will now read $20 and $30 respectively. So, what’s my take on downing the discounts?

My initial reaction was that the everyday value price was a smart move, but the whole number pricing was a bad move. When you’re in the dressing room (I use this example since I most frequently buy clothes instead of other items from JCP), you know the price on the tag is not the price you will actually pay. However, there’s no uniform discount, so you can’t really remember if the $69.99 dress is 40% off or 50%. Then there’s the extremely rare occasion where the item isn’t marked down at all. So, you pick out all the items you like, and then circle back through the aisles to try to determine how much money you’re actually spending. This is particularly important and frustrating if you’re on a budget, since the discounts drastically reduce the prices. As a marketer, I’m also frustrated that you’re trying to anchor me to a price that’s MUCH higher than I actually think the item is worth. I know full well I’m not willing to pay the price on the tag, and I know full well I won’t have to pay the price on the tag, but even with all my insight into this scheme, I still battle my human brain. And, my human brain automatically considers the number in front of my face, no matter how ridiculous it may seem! So, I don’t appreciate the mind games, JC Penney, just give me a price!

Now, JC Penney is giving me the price, but since they’ve trained me to reject the price on the tag, it’s quite difficult to break that habit. I took several skirts into the dressing room, and I had to force myself to consider the price as stated. I was happy to pay the $25 listed, but I felt like something was wrong about paying “full price” at JCP, even though the price was less than the amount that I valued the item. Again, all my marketing know-how pales in comparison to good ‘ole human instinct. The whole pricing was also a shock to the system. It’s one little penny, but for some reason, the price of $25 instead of $24.99 just made me feel a little off. Again, you’ve trained me to think I’m paying less than $25 by constantly knocking off the penny, so again, you’ve made me feel like I’m paying full price at a place that shouldn’t ever receive full price for an item!

The other issue with the whole pricing, is that they picked some odd prices for rounding. Signs with “$6 and up” or “37 and up”… what? At this point, you’ve now triggered my $10 price point or my $40 price point, but I’m not willing to pay $10 or $40. Again, I can analyze it to figure out why this bothers me, and rationalize that it’s silly, since I won’t actually have to pay $10 or $40. But still, had you told me $5.99 and $35.99, you’d trigger the lower price point that I am willing to pay. Further, the whole pricing just feel cheap, and JCP is trying to bill itself as quality. Again, it has very little to do with how much I actually value an item, and how much I’d actually be willing to pay for the item, and much more to do with how I feel during the buying experience. And, JCP is trying to make you feel better during the buying experience, as their competitive advantage and value-add. But they haven’t made me feel better, they’ve just made me spiral into a marketing nerd analysis of why I would normally be fine buying the $25 skirt, but today, it feels funny! (Granted, I’m a HARDCORE marketing nerd, so the general public probably doesn’t go through such analysis while buying, but the research has shown that the points mentioned above do affect people, whether they know it or not. So, sans crazy marketing rabbit hole, people might choose to abandon the purchase altogether!)

Long story short, this strategy has some major pitfalls to overcome, and it’ll be an interesting case study once the new wears off. How do you feel about the new strategy? Like the outfit? Click here for more details!

Perceived Value

On By ashleyfausIn Advertising, PricingLeave a comment

I read a Forbes article a while back, titled, “Restaurant Foods That Are Ripping You Off“. Basically, the article talks about how you think you might be getting a good deal at a restaurant by choosing a cheaper entree, but the menu price may not  correlate to the true cost of the meal. For example, a plate of pasta and tomato sauce is MUCH cheaper to make than a prime steak, so the best value is to order the steak, even though it may cost a few dollars more.

This pricing scheme is due in large part to perceptions, and how perceptions contribute to value. It’s also part of the reason why I don’t generally choose Italian or Mexican restaurants when I’m in the mood for fine dining. I can make spaghetti and meatballs at home that are equally as satisfying as a restaurant dish, so I don’t want to pay such a high price for them to cook it. Similarly, I love cheese enchilada dinners, but I know that the cost for the whole plate (including rice and beans), is pennies on the dollar. I’m willing to pay up to $9.99, but $15 for a plate of cheap food? Heck no! Now, it’s a whole different ballgame when we start talking about steak and seafood, since I can’t make an equally satisfying dish with either of those ingredients. If I’m going to spend good money at a restaurant, I want the items that I value more, based on my inability to provide equal value myself.

Perceptions make a huge difference in your ability to price your items. For example, my perception is that good seafood is hard to get in Texas, so it should cost more. This perception is generally true, since we have to get our seafood shipped in from other coasts (trust me, you don’t want to eat seafood out of the Gulf!) However, my perception is that cheese, tortillas, rice, and beans, are widely available, and the labor cost to make the food is low (I mean really, throw the rice in a pot and walk away, you don’t have to baby-sit!). Therefore, I don’t perceive that going to a restaurant for this type of food has much value. If people think that your items are commodities, or that they are easy to produce themselves, their perception will be that you don’t provide as much value.

Sometimes, perceptions have nothing to do with reality, and this is where marketers sometimes get a bad rap. People think that marketers just manipulate their perceptions, in order to contribute to the consumerist and corporate greed. While some do this, I’m not one of them. I will say that shaping perceptions can be helpful to the consumer, as giving brands a certain reputation makes it easier to buy for your budget, quality, and functional needs. However, a healthy dose of skepticism about claims “too good to be true” is a good way to make sure that your perceived value is in line with the true value of an item.

Pricing and “Deals”

On By ashleyfausIn PricingLeave a comment

 

A great deal on the surface, but dig a little deeper!

 

A bigger deal is a better deal right? I say, WRONG! I subscribe to Living Social, the daily deal site that offers nice discounts for local activities, direct to my inbox! However, a recent daily deal had me baffled on the pricing and “deal” nature of the coupon.

The deal advertises $80 to spend at Mi Piaci Italian Restaurant, on sale for $40. It does not include alcoholic beverages, so I was pretty curious to see the menu prices at this Italian restaurant. Upon clicking over to the menu, the appetizers, entrees, and desserts seemed pretty low-priced for a $40 coupon for $80 worth of food. In fact, my husband and I could both order the most expensive entree and just barely over-spend our coupon! Essentially, the coupon is over-priced for the restaurant. Why would I pay $40 for a coupon for $80 worth of food, when I could go to the restaurant outright and spend about $40 without the coupon? The goal of a coupon is to get a person to either return in the future, or spend beyond the coupon amount when they redeem the coupon. Thus, with this pricing scheme, it’s going to be hard for me to do either one! Instead, I would suggest pricing this Living Social deal at $20 for $40 worth of food, as it would encourage diners to splurge on higher-margin items like alcohol or dessert. Currently, the coupon amount allows me to order an appetizer, semi-expensive entree, and dessert, meaning that I probably won’t feel the need to order other “extras” to increase my total ticket. If, however, I had less to spend from the coupon, but still a significant reduction in my total check, I might be inclined to order a glass of wine or dessert.

“Deals” are actually a pretty complex mind-game. You want people to feel like they’re getting something great for the price of something good, but you don’t want to stifle their “need” to spend a little more. If you make the deal too sweet, you kill the desire to over-spend the coupon, which decreases your profit margin on the coupon. You also alter the anchor number for the customer’s next purchase experience, making it more difficult for you to recoup your promotion costs. I’ve seen this happen with pizza, where coupons have significantly lowered my anchor number for the cost of pizza. I never pay full-price for pizza, as there’s always some kind of promotion at any of the major pizza chains. After years of receiving $10 large, 5-topping pizza deals, I’m not willing to pay more than $10 for a pizza! In this case, my anchor number will probably be set higher. I’ll remember that my check from the restaurant came to $80, but I doubt I’d see $80 worth of value from that meal (since the prices are low), reducing the chances that I’d return to Mi Piaci when I’m in the mood to spend either $40 or $80 on a dinner date.

By mis-pricing this coupon, Mi Piaci and Living Social have effectively changed my price-point expectations, and lowered the profit-margin, as I have no need to over-spend my coupon. And, as I’m concerned that I’d be able to meet the $80 limit in one dinner, I’m inclined not to buy the coupon at all! Everyone loses in this situation, and I think a reduced coupon price for a reduced redemption value would actually better serve this whole transaction!

Package Pricing

On By ashleyfausIn Pricing, SellingLeave a comment

My mother-in-law is gaining steam in a business for hand-decorated theme cookies. She’s the owner and the sole employee, and she does some pretty amazing designs with icing! She’s been asking for pricing advice over the last few months, and I think she’s finally made some strides in how she’s pricing her items. I wanted to share a quick bit of insight that we recently discussed!

She offers several different sizes of each cookie, and several different levels of decoration. The price is a function of size and decorative complexity, so she’s been pricing the cookies individually. This model works well for cookies, as the sizes and decoration are customizable. However, she also has other baked goods, like mini muffins. She intended to price the mini muffins individually as well, but it would come out to something like $0.50 per muffin. She also wanted to factor in the cost of the container and ribbon, and considered pricing these a la carte as well. Instead, I suggested going with a different route: offer 3 different amounts of muffins, and either standard or premium packaging. I explained that it feels like “nickel and diming” if you start requesting 1 additional muffin, and charging an extra $0.50, a “nice” bow for $1 instead of $0.75, and a bigger tag for $0.75 instead of $0.50.  Offering a single price for standard packaging and premium packaging also applies to any future products, so she’s not having to list out many different prices for each item she offers.

She’s been asked to make up some gift bags within a certain price range, and she was debating about the type of items to include. I think the first question should be, “who is the customer, and what do they care about?”  The client is providing gift bags for Christmas to the mostly male staff, who are generally married with children. I don’t want to stereotype, but I would make the following assumptions: men care less about decoration than taste and quantity, men don’t care at all about pretty packaging, and they will take at least some of the cookies home to their wife and kids. Thus, for a given budget, I would allocate more money to quantity than decorative complexity or premium packaging. She originally suggested one large, highly decorated cookie, a small package of muffins, and a large bow. I recommended two smaller, minimally decorated cookies, a large package of muffins, and a small bow to allow for more sharing.

She hasn’t looked into her profit margins and pricing schemes too heavily, but as her business grows, she’s continuing to research the best options. I think package pricing is going to be more important as she grows the business, and I think there are a lot of ways to make customized packages without confusing the customers or sacrificing profits. If you’re in the mood for some delicious treats, check out her gallery and pricing for Moon Glitz Delicioso! She can ship anywhere in the US (and she’s shipped overseas once or twice too!), and I can say from personal experience, you don’t be disappointed 🙂

Comparative Pricing

On By ashleyfausIn Outfits/Workwear, PricingLeave a comment
Jersey dress with knit blazer for the office

 

Great length and neckline

 

A little sassy for non-work events!

 

Dress: Ross

Pumps: Alfani Step-N-Flex

Knit blazer: don’t remember, but they’re everywhere these days!

Earrings: Silpada

Bracelet: NY & Co.

Like the outfit? Click here to see more details! (We went a little picture crazy on this shoot, check out some random poses/facial expressions!)

 

 

This is another dress from Ross, and it fits the breezy, jersey dress that I’m loving for the summer. For those unfamiliar with Ross, it’s a discount store that offers name-brand styles at a lower price than the department stores. Competitors include Marshall’s and TJ Maxx, and I’m sure most regions have their own version of these types of stores. It’s always hit or miss in terms of selection and store atmosphere, but I’ve had great success in the past few months at the Ross just across the street from my office. One thing that Ross does on ALL items, is show the “Compare At” price, just above the substantially lower “Our Price”. As I’ve just completed my Buyer Behavior class, I’ve had comparative pricing on the brain, and this dress gave me a little push to write a post on it!

Comparative pricing is often ambiguous, as it generally doesn’t say where the “compare at” price comes from. Is it the suggested MSRP, the retail price at another store, or just some random dollar amount to make the “our price” look better? Part of me falls into the trap that the comparative amount is completely founded, and it does make me feel better about buying the item. But let’s be real here…. there’s a little marketing hype in this, as it’s highly unlikely that this EXACT item is currently selling elsewhere for triple the price. Granted, sometimes things go on sale because they have limited quantities, or they’re out of season. For Ross, it seems like it’s usually the former, as there’s only one dress in one size. Thus, a department store doesn’t want to carry a single piece in a single size at a single location, since it can hurt customer expectations of variety and availability. However, for stores like Ross, customers expect that they can’t find it at another Ross, and that there’s only one size.

All the pondering about why an item is priced one way at Ross and another way elsewhere is less important than what the comparative pricing does to a customer subconsciously. At first glance, in spite of the most logical argument to the contrary, our brains see the lower price and categorize the item differently. By giving you a benchmark, no matter how off-base or unfounded, the marketer for that retailer has effectively made the customer question their initial price point and evaluation of the product. It’s just like marking something for “sale” or calling something a “good deal”. Sure, most people will investigate it, but at least you’ve given them cause to further consider the product. Sometimes, the extra minute that someone thinks about the product is all that is needed to convince them of a sale.

I try to be wary of my fellow marketers’ mind tricks with “compare at” pricing, but sometimes, a piece really is a good deal! My recent jersey dress purchases from Ross have proved versatile, easy, and functional, and I don’t feel bad about the price tag either! Like the outfit? Click here for more details!

The 4-Color Process Charge

On By ashleyfausIn Advertising, Pricing, SellingLeave a comment

I came across an interesting blurb in one magazine’s rate sheet for advertisers: computer printing makes the 4-color process only slightly more expensive than a black and white print-job. And, if the rest of the magazine is printed using a 4-color process, there’s really no reason to charge for the “labor” portion of the 4-color fee. Sure, it takes a little more ink to create a 4-color ad, but the huge “labor” fee that used to be charged is irrelevant in the digital age. What’s more, this particular magazine is using this as a cost-advantage in their value proposition! They will let you run a 4-color ad for the same price as a black and white ad.

This is pretty much non-existent in the other magazine rates I’ve viewed, so it definitely piqued my interest. It further piqued my interest regarding negotiations for rates with other magazines… if there’s really very little cost for them to create a 4-color ad for my company, they should be able to negotiate the price with more freedom. I know it’s probably one of those industry secrets that you’re not supposed to know, but one magazine chose to out the truth, giving them a leg up on pricing and trustworthiness. I think it’s a pretty smart play on their part, and I will certainly take a closer look at their stats when creating my budget for next year.