Customer pricing – Price vs value

“A retailer prices a product,a customer values it for what it is worth”

This Quotable quote originated nowhere else but in my own mind after being subjected to several incidences of winning and loosing the customer and getting her nod and nay,not for me.

While doing a presentation on Retail pricing strategy I came across a lot of material Differential pricing,Mark up Pricing,Competitive pricing,Penetrative pricing and so on.

But my experience in real life told me that something was amiss.What about the customer ? You are talking about your business model,Your costs,Your margin targets,Your competitors,The market scenario and all else but what about the actual customer who will shell out money from her pocket and take a purchase decision in your favor.I am sure there will be a lot going on in her mind when she decides to part with that hard earned currency note or gets indebted for the next few months to the bank and pay high interest charges.

Are we even asking her what do you want ?                DSC01694

How about a customer pricing ? What’s wrong is creating a product and asking a hundred of them what they would be willing to pay.I have no opposition to the pricing strategies  traditionally in practice but I am just saying that something is missing specially in the context of retail.

Let’s see and example :

What would pay for a  plastic slipper in a hyper market – May be Rs99

What would you pay for the same plastic slipper if it has a good brand name printed on it – May be Rs 149

What would you pay for the same plastic slipper in flea market – Rs 49

what would you pay for a plastic slipper with a house brand of top luxury retailer – Rs 199

The function is the same and it is just possible that all the product is being sourced out of the same factory and the same assembly line but the customer will only pay so much at different locations.

And location is just one on the dimensions that plays in a customers mind.There could be so many others Festive season,Comfort,utility,distance/cost of acquisition etc etc.

Every retailer positions itself to serve a certain niche or target segment and that is perfect as an idea but where we continuously go wrong is that we fail to recognize is that while your customers are saying yes to many products in your store they are also saying no to a  lot of products.This may impact profitability through loosing customer preference in terms of reduced shopping trips and increased frequency and intensity of markdowns on your product mix.

I strongly feel that retailers tend to loose the grip in the sense that what they feel is a great product or price turns out to be a damp squib with their customers.What should be transaction by transaction,customer by customer approach soon becomes a game of probability so much so that the buyers start building in for markdown in their business plans.While mark downs may not go away they can be substantially reduced by asking the customers what and how they feel about offerings.

Typically, a buyer will get in a product or a line of products and the DMM’s,the store managers,The operations guys will all sit in a room  and decide its fate.They will debate amongst themselves and the guy with the loudest voice and the heaviest weight will win.If you have a ‘yes’ man culture you can kiss your winter 2010 range good bye.The problem is that even if most people will know it they will not say it.

In contrast if we have panel of customers of different hues,age,sex,color,lifestyles and we get their opinion we may just find out to our horror that  the so called ‘winners’ did not excite the audience and they ended up picking up stuff from the ‘dumped’ corner.

When a retailer is ‘pricing’ he is building up the stake of the entire company,his business plans,his growth projections,his stock price,his career path and everything else in between into it.His decisions cannot be but colored.

But when the customer ‘ valuing’ a product she is deciding based on aesthetics comforting her eyes,the softness that her hand feels,the freshness that here senses smell,the utility that here mind perceives,the price that she paid for a comparable item some time back.She is not bothered about what the Ex factory price is,how much it cost to get the product from the Jungles of Africa or how much you pay your 26 vice presidents who have nothing to do with her moment of truth.She will just see what’s in it for me and what I need to pay for it.If she fels that the transaction is in her favor she will go for it else you can put it on discount so it is up for revaluation when the second chance comes.

Again she gives two cents for your negative margins,vendor markdown supports,company policy so please be careful in repricing.You may discover that your Buy One get one offer is a cold turkey as no one wants to buy a yellow color T shirt with Parrot green collars with which you wanted to make a fashion statement in your boardroom.

Our customers are our biggest and most valued assests,let not keep them out of our business plans.


2 comments on “Customer pricing – Price vs value

  1. Madeleine says:

    Hello, I’m responding to your comments about businesses listening to customers opinions and it being a somehow democratic ideal to uphold.

    If you are really concerned about the destructive effects of capitalism in your country and the world – which, from reading some of your other information and posts, I believe you are – please see that this idea is a trap. I hope you will understand that standing up and having a voice in the boardroom for what you want, like and love, is in fact giving away precious secrets to a greedy machine with no heart.

    Marketing experts and Advertisers would love to understand exactly what every buyer is thinking, in as MUCH detail as possible. In fact they will spend billions of dollars trying to find out. I have sadly witnessed this process happening in my hometown Melbourne, Australia.

    At first people are sceptical of advertising and how ridiculous it can be, putting out weird and distorted images of us, of people – enough to laugh at and brush away. “They don’t get it!” we think. We may even become angry, that media figures, values and images AREN’T real, so false, idiotic! We start demanding that they make more effort to understand their audience, be inclusive. “Don’t misrepresent us,” we say.

    Thus more and more, we allow market researchers to invade our space, answering subtle questions, describing what we like, what we think, feeling included in the process. They are mining data, selling statistics, creating libraries of our info that we don’t even know exists! Smart business people buy this info so as to determine pricing structures, target their customers perfectly, create need in customers.

    Meanwhile the ads get more ridiculous and pervasive, and believe it or not – people start responding, feeling curious, excluded from these hyper-realities of ads, jealous of those who appear to understand, tense from the manic sounds of TV, radio ads, hungry, saturated with perfect images, a little disappointed at reality’s normalness. We start trying to find the same hype and excitement. Going around with this wanting feeling, needing something to fill a hole.

    This feeling is EXACTLY what the advertisers want us to feel, because if someone’s feeling this way, and they wander into a shop, a supermarket, a mall, their hunger leads them blindly to the thing which looks comforting, bright, colourful, happy, safe, strong, secure, lovable. They are far more likely to buy in this stupor of emptiness.

    Reading this I am sure you know that the real source of help for emptiness is a home, a family, a warm friendship. A warm fire, a mother’s cooking, a song, a rhythm, a kind word, a genuine smile from a stranger. These are the things which capitalism can never foster, never account for, never understand, but will always try to capture and destroy by recreating false impressions of them. Like a heat-seeking missile. Like poison.

    Once people start to forget how to create warmth for and with each other, start being empty all the time, spreading fear, the secrets get harder to remember, to find. To share. People get greedy with each other’s energy, envy other’s gifts. Start hiding away, getting sick hearts and heads and bodies.

    In my experience the best way to preserve your community, your hometown, the simple things, don’t ask to be properly represented by advertisers, don’t complain when the ads are too far-fetched. Celebrate. Laugh like someone who just got another 20 years. Because it means they are still far away from the hearts of people. They will still try to get your info. Will rudely call at dinner time to politely ask your opinion, “how much would you be prepared to pay for…” “How does X brand make you feel?” Unfortunately I have worked for these companies to pay for university. They pay very well and hire friendly people to ask their invasive, innapropriate questions. Because what they are mining is GOLD. It is VERY precious. Say NO. Protect it with everything – it is your life, the future. Urge your friends and family to wise up and protect it too.

    Most of all, keep injecting good healthy doses of the “real stuff” everywhere you go. Share it because its free. But it needs to be nourished and encouraged to grow, shine, be fearless. Never forget how to make everyday gold, create it, bring it out in others.

    “The small man builds cages for everyone he knows,
    while the sage, who has to duck his head when the moon is low, keeps dropping keys all night long, for the beautiful rowdy prisoners”
    sufi proverb

    I hope this is useful to you as your beautiful website is filled with wonderful gifts. I was looking for the words “six lanes” and I found your post. Thankyou. It unlocked a cage for me.

    Madeleine Leahy

    • aahang says:

      Thanks for spending time on my blog and offering your valuable insights.I am not sure if we are on the same page but essentially what I am saying is that the marketeers have to stop looking at people as statistics.They are human beings with all the qualities that you have mentioned and their choice of price or product needs to be recognized,respected and upheld at all costs.

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