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.