Over the course of my career, one of the first things I’ve encountered when meeting a business leader was their complaint about the lack of effectiveness of their marketing and the branding. They’re concerned that they were losing customers to competitors and uncontrollable market forces, and thus missing out on revenue as well. They feel that they have to suppress their prices and eat into their margins in order to acquire and keep customers when the problem is really an unfocused brand.
Consumers make purchases based on subjective underlying psychology. They gauge your price and determine whether the price is fair based on a few internal criteria. They will place you and a few other brands into a group and then weigh your product or company’s features against the others. This is where you have the greatest chance of losing a customer. However, when your brand sends a clear message then you will only lose the customers that are not right for your brand when your brand and/or product is properly differentiated then customers can easily make the decision that will best suit their needs. But how can your pricing aid in telling that story?
It depends on how you have positioned your brand and the products you offer. The way you position your brand and product conveys that your brand is the right brand and that your price is fair. Your positioning should be determined in a few ways namely; price discrimination, product categorization, and consumption visibility vs involvement.
Price Discrimination is the act of selling the same product to different customer segments in order to increase revenue. It’s the reason that companies like Comcast have different plans or Auto Manufacturers have different trim levels. Price discrimination opens up your brand to different levels of customers and their consideration set. This also gives them a choice which softens the pain of paying for more expensive plans, making your brand more customer focused and profitable.
How your product is categorized also has a profound effect on how your customer perceives your pricing. There are three levels of categorization based on consumers disposable income; inferior goods, normal, and luxury. Inferior goods are goods that people buy more of when they have less disposable income like bus fare and rice. Normal goods are goods that customers purchase more of as they gain additional income, think of goods like coffee and clothes. Normal goods can also mean necessities like paper towels, detergents, cleaning products, etc. Luxury goods, on the other hand, are goods that are purchased when a consumer’s disposable income exceeds a certain level so they purchase more of these items. This includes high-end fashion brands, TVs and travel.
Understanding which category your product falls in helps you tell a more compelling brand story. For example, if you know your brand is a normal good then you know that the story that your customer is telling themselves is that this product is not a luxury product and should be within certain pricing boundaries. Once you know those boundaries then you can reprice or reposition the brand according to the story that you would like them to perceive. Hyundai is a good example of that. A few years back they repositioned to sell more expensive cars, so they improved the quality and style of their vehicles so that they could command a higher price. That brings us to our next point.
Purchasing a car is a highly social action because it helps us help our clients tell others a story about themselves. For example, if you purchase a Hyundai now versus 10 years ago the story that you are explaining is completely different. 10 years ago you were a very practical, maybe entry level business person, who lived fairly simply. Today you would be seen as a high-level executive. This concept is called consumption visibility, and it’s the idea that others can see us consuming the products that we have purchased. Products fall into high and low-level consumption visibility. High consumption visibility means that people can see us while we consume the product. Low consumption visibility is the opposite, and typically refers to goods that are consumed in privacy. Goods like cars, clothes, jewelry, and fast food are all high consumption visibility products, while cereal, toothpaste, cleaning products, and medicine are low consumption visibility products.
In addition, we have to weigh consumption visibility against the amount of “involvement” that is included in a purchasing decision. Involvement is the actual considerations a customer is making before purchasing, and the more considerations they have the higher their level of involvement. Involvement tends to go up as the purchase becomes riskier, as well. That means as the price increases that so does the amount of thinking a customer needs to do in order to make a decision. The weight of their purchase is heavier because if they choose the wrong product for their needs and the price is higher they will have lost more. For example, it’s never a hard choice whether or not to buy a McDonald’s cheeseburger for most people however, it is difficult to purchase a car.
There are four sections of the consumption visibility(cv)/involvement matrix ;
1. Low cv/low involvement
2. High cv/ low involvement
3. Low cv, high involvement
4. And high cv/high involvement.
The best way to connect with a person is through their emotions. Your brand helps you connect with your customer at a deeper more emotional level. Your brand helps your customer to tell themselves a story about your company and themselves. What’s great about stories is the brain actually processes stories and emotions before it processes reason and logic. By making our story more compelling for the customer we make it easier for them to process our message and which makes it easier to buy and we also remove friction from the buying process.
Having a clear story and combining that with strong product categorization and pricing gives our customers reasons to believe that our story is true. When they believe that you are the solution they’ve been looking for not only will they purchase repeatedly they will tell other people to do the same turning your customers into loyal fans.