Opinion

Price is not a viable option to increase value perception. Period.


Let me be completely, utterly and totally clear.

Opening a price battlefront is NOT the way to secure your future.  Competing on value is.

These are two distinctly different things.  So why the hell are big businesses opening pricing wars which only result in a race to the bottom?

Research out today (covered by Marketing Week) indicates that:

Shoppers see value based on a varied mix of quantity, quality and price

D’uh.

Price is a single component of the mix.

It is not the be-all and end-all of the equation.

Value is complicated.  It relies as much on pure product experience as brand perception.  See Coke v Pepsi blind tastes for a working example.

Value is also judgement based – and that judgement lies in the consumer’s mind, nowhere else.

“What’s good value for me?” “What am I prepared to put up with/lose to gain a pricing benefit?”  These are the questions that the consumer is asking themselves, consciously or subconsciously.

Price devalues an object.

Cut your prices, and your product is worth less.  Perhaps it was over-priced at the start (poor value). Or maybe it was priced right, but something else was wrong.

As soon as you change the ticket, it is physically worth less.

If Ferraris sold for £25,000 everyone would have one and the product would only be worth what you paid for it.

But Ferraris aren’t priced at £25,000.  Their value is elsewhere, hidden in the engineering, the design, the desirability.  They have value to their owners, even though a Ford Fiesta does pretty much the same job on a rainy Monday in Sainsbury’s car park.

Most right thinking people know this.

So I’m aghast at the Co-operative, quoted as follows in the Marketing Week story:

A spokesman for the Co-Op says they are “disappointed” with the Shoppercentric results, and they are working hard to address the value perception “issue” with “significant investment in reducing prices” and “product and service development.”

Significant investment in reducing prices?  Really?

All they’re doing is making another contribution to turning the great British buying public into a mass of price-sensitive brand hoppers. (For more on the price sensitive issue, see this post about the failure of Tesco’s Big Price Drop and this one about the High Street’s plethora of SALE! signs)

This is not good for business.

This is not value.

This is price.

And the lower you go, the lower you stay.

Until you get to a point where you can’t reduce any more.

When the product price alone puts people off.

“20p for a tin of baked beans? Must taste awful.”  That’s what they’ll say, even without trying the product.  How are you going to win them over then?

When you hit rock bottom and still you’re not making margin, will it be too late to claw your way back up?

To put value back into the product?

To make it mean something in the shopper’s basket?

I’m guessing that when you’re at that point, you’ve exhausted all of the tricks in the trolley.  You’re done for.

So, for goodness sake, don’t compete on price unless you really have to.

Whatever you’re offering, whatever’s on your shelves, make sure that it has value to the customer.

Because if you don’t, you will die a slow, lingering, painful and very public death.

Neil Hopkins is a Marketing and Branding Theorist at heart, and a Marketing Communications Manager by day. His blog – interacter – is the primary location he shares insight and information relating to marketing, branding and advertising strategy.
You can follow Neil on Twitter, circle him (like an escaped bull) on Google+ or track him down in any number of other ways.

Featured image for this post comes from Images of Money’s Flickr Photostream

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3 thoughts on “Price is not a viable option to increase value perception. Period.

  1. The other point is te common confusion of price with cost. They are not the same. Cost is the total sum incurred to get the product onto the shelves and into the customers basket and the price is what the customer pays. Price leaders (those companies who successfully retain a low-price leadership position over time) do this by lowering COSTS, which then enables them to reduce prices whilst retaining their margin. Reducing prices without lowering costs simply lowers or eliminates your margin – and this has one destination … business failure. Price leaders engineer low prices across their organisation, they don’t simply lower prices. You cannot offer below cost pricing unless this is offset elsewhere.

  2. Great point, Gary – thanks!

    I think that the whole issue comes down to business strategy, and I am really concerned that slashing prices and/or costs fails to develop a long term, sustainable business for the future.

    The world is hard enough now as it is. Give it 12 months and there won’t be anything left to cut if the rate continues as is…

    As a consumer, that’s a worrying thought…

  3. Pingback: The madness of price wars « gary burt

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