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In this edition:

• Column: Is Pricing The Most Important Marketing P?

• Inspiration: Irn-Bru Is Ready For The Euros

• Webinar Recording: Pedro’s Take On What Marketing Trends To Watch For

Column: Is Pricing The Most Important Marketing P?

Pricing is the ‘least sexy P’ of the 4Ps of marketing.

When you think of marketers you think of creative people coming up with ads, developing packaging, managing social channels…

But the reality is — pricing is the only P that actually produces revenues. And marketers need to have a hand in determining it.

However, contrary to what most believe when they think of ‘price’, PRICING (note the -ing at the end) is much more than just setting a price.

It involves pricing research, setting the price and, arguably most important of all, communicating the price.

The Four Levers of Profitability

It’s quite common to think of business success in terms of revenue growth. However, revenue is just the ‘carrier drug’ of profit.

What pays the bills isn’t revenue — it’s how much money you’re making after costs.

Sure — if you’re Uber and are trying to drive trial in a brand new category and you have deep-pocketed investors, you could choose to incur losses for several years in order to make your product indispensable in the minds of customers.

But at some point you’re going to have to turn up some profit, otherwise you don’t have a business.

In their book “Smart Pricing: How Google, Priceline, and Leading Businesses Use Pricing Innovation for Profitability”, Jagmohan Raju and Z. John Zhang reveal the effects of what a 1% change (in the right direction) has on profitability:

• If you reduce your fixed costs (e.g. payroll) by -1%, on average you will increase your profit by about +2%

• If you reduce your variable costs (e.g. cost raw materials) by -1%, on average you will increase your profit by about +6%

• If you increase your sales (e.g. revenues) by +1%, on average you will increase your profit by about +3%

• But if you increase your PRICE by +1%, on average you will increase your profit by about 10%!!!

Don’t get hung up on the exact numbers here. What matters is that the effects of a price increase can be 2-5x as effective in increasing profits than any other levers at your disposal.

That’s why understanding pricing is such an important tool in any marketer’s toolkit.

Pricing Research

Most of the time, companies price their product using the simple 'cost plus’ approach, where they calculate their total costs then layer on a mark up to make some profit.

While this does the job, it keeps the customer completely out of the equation.

As Michael V. Marn, Eric V. Roegner, and Craig C. Zawada from McKinsey & Company have uncovered in the past, 80%-90% of all poor pricing choices are because they are set too low.

So, how might including the customer into the mix solve this problem?

When you conduct pricing research you want to find that sweet spot in which your product isn’t priced so low that it erodes its brand equity (i.e. customers might think it’s bad quality), nor so high that it scares away too many potential buyers (scaring some might be ok, as the loss in revenues will be justified by the disproportional increase in profits you’ll experience).

You effectively want to get as close to your product’s “perceived value” as possible — which in all likelihood is higher than the markup you’re currently layering on top of your costs.

To do that, you might choose to go with the Van Westendorp Pricing Meter, in which you ask a representative population size four key questions about your product:

1. At what price is it so low you question its quality?

2. At what price do you think it’s a bargain?

3. At what price it begins to seem expensive?

4. At what price is it too expensive?

The area formed by the intersection of these four lines on a graph (share of respondents on the Y-axis, and price points on the X-axis) is your sweet spot.

Not only that, but you’ll have a sense of how many customers you’re likely going to lose by increasing to X amount, or the number of customers you might gain from lowering it to X amount.

This is a fantastic way to land on your price without guessing or relying on your competition’s poorly made choices.

Price Communication

Now that you have your price set with confidence you might think “well, now all I got to do is get it to market!”.

Wrong.

Communicating your price properly is just as important, if not MORE important, than the price itself.

Let me share an example to illustrate why:

Ferrari has stopped showing their cars next to other regular cars because it made their vehicles look even more obnoxiously expensive than they already were.

Instead they did a couple really smart things:

• They made sure that their dealerships were nowhere near Ford’s, Honda’s, Toyota’s, and other popular brands, and instead next to their luxury category peers’ (Lamborghini, Aston Martin, Maserati, and so on).

• They also started showing off their cars next to private jets in exclusive events. This way, if you’re shopping for a $3M jet, a $400K Ferrari feels like an impulse buy.

These simple moves ensured that Ferrari was framing its product within the right category (not the personal vehicle category, but instead in the luxury goods category).

Another interesting example of how a company communicated their prices effectively was when The Economist made a mistake and showed the following subscription options:

As you can see, the Print & Web subscription ($125) is the obvious one to pick. As a matter of fact, Dan Ariely ran a small experiment with his MIT students and asked which ones would they pick from the options above — 84% said print & web, 16% said digital only, and 0% said print subscription (obviously).

Then he removed the print subscription option to see if results would change. What happened next is a prime example of how you present your price points might be the difference between making a sh*t ton of profit or missing out on it entirely.

The results came back and only 32% of the students now would choose the print & web option ($125), whereas a whopping 68% now would choose the digital option ($59).

That redundant silly mistake in the middle, which had the same price point as the print & web option, was a decoy effectively framing the $125 price point as a bargain.

Take The Power Back

As marketers we might feel shy speaking up when the topic is pricing.

It sounds like a finance domain that we know very little about. But that couldn’t be further from the truth.

No one else in the organization is as close to the customer as marketers are. We live and breathe market research and consumer insights, we represent the voice of the customers in meetings, and we use creativity to unlock growth.

With the Pricing P is no different. Our insight into what makes sense to the consumer can be the biggest driver of organizational profit growth.

If we avoid just lazily slapping on a 30% mark up on what we sell, and instead do the actual work to understand how customers feel at different price points, we can be driving A LOT more profit for the brand. And in all likelihood, a lot more than all other initiatives we’re working on that year — combined.

This isn’t about having a premium price.

It’s about holding the line on our product’s perceived value.

Inspiration: Irn-Bru Is Ready For The Euros

Continuing on the humour train, this week I want to talk about a little-known soda brand in North America (at one point thought of being banned in Canada), Irn-Bru.

This Scottish orange fizzy drink apparently has been pumping out winning ads consistently over the years. Their funny, tongue-in-cheek ads are synonymous with the brand, known as Scotland’s “other national drink”.

The Scottish, known for rarely being optimistic about winning games at the Euros, have qualified this year and Irn-Bru didn’t skip a beat.

Playing on that stereotype, a Scottish lady goes to the doctor feeling symptoms of… optimism.

Brilliant and timely ad. Another score for Irn-Bru.

Webinar Recording: Pedro’s Take On What Marketing Trends To Watch For

Last week, WJ Agency and I hosted a free lunch and learn titled Marketing Insights: Winning with Emerging Trends.

If you missed the webinar, we’ve uploaded the recording to YouTube here for you to watch at your own leisure.

In this 1-hour webinar I dive into 5 challenges that I believe are slowly shaping the future of marketing:

☑️ How to avoid the trap of short-termism

☑️ The importance of creating connections where customers are most present

☑️ The revolutionary impact of artificial intelligence on campaigns

☑️ The growing influence of virtual worlds in gaming

☑️ How a strong brand identity can serve as a powerful differentiator in a crowded market

If you have any questions on the topic, just drop a comment in this LinkedIn post and I’ll answer it!

More of PPA:

• 🤝 Connect with Pedro on LinkedIn and/or X

• 🍻 Come by the WJ office for a brew

• 💌 In case you missed it:

  • How To Sustain Product Innovation

  • Mobilizing Resources Through Objective-Setting

  • How To Be Clear With Your Brand Positioning

PPA 

Pedro Porto Alegre is a seasoned marketing professional with in-depth experience building brand and communications strategies for top-tier B2C and B2B organizations across Canada. His repertoire extends from crafting and executing integrated multi-media brand marketing campaigns to the commercialization of performance-driven innovations for multimillion-dollar and nascent brands alike.