Back in the day, pricing was a foundational piece of all marketing strategies. When I went to grad school, for example, the four Ps were in vogue – product, price, place, and promotion. At that time, the intersection of pricing and marketing was seen as a given, almost a tautological concept.
But as marketing professionals and professors' desire to innovate and differentiate intensified, the traditional 4Ps evolved into new frameworks like the “4Cs”, emphasizing concepts such as customer, cost, convenience, and communication and the "4Es" of experience, exchange, evangelism, and everywhere into the marketing lexicon. And I admit I lapse into momentary shudders when I think of all the as-yet-untapped letters in the alphabet.
In this evolving landscape of marketing terminology, it's crucial not to get bogged down in the etymological intricacies. Instead, we should focus on engaging in meaningful and practical discussions that can genuinely benefit businesses. Whether we’re talking about price, cost, or exchange, price is an integral aspect of marketing strategies. Therefore, for this article, I am going to stick with the “4Ps” even though the concepts are equally applicable to other incarnations of the concept.
By prioritizing actionable insights over semantic debates, we can navigate through the marketing alphabet soup and uncover strategies that drive real value for organizations.
There are a few important things to remember about pricing. First, the price of a product or service has the most direct and often the largest impact on the company's profitability. Thus, ignoring pricing as a priority can be detrimental to the bottom line. Secondly, the price of a product or service also sends a signal about quality, value, and durability to potential buyers. This is especially true in certain categories, including personal electronics, food and beverage, and automotive.
This is why most companies offer a range of products with different price points to cater to the needs of different market segments. For example, Apple offers MacBook Air (in at least three pre-packaged versions) and MacBook Pros (also in at least three pre-packaged versions) to target different customer segments. Similarly, Mercedes offers at least four versions of 4-door sedans (A, C, E, and S Class of vehicles), and Netflix offers at least three tiers of its streaming service.
Pro Tip: Companies can use the relationship between their products and prices to entice customers to buy more. A great example of this is how Starbucks prices its three sizes of the same drink. For instance, at my local Starbucks, a Tall (12 oz) cappuccino costs $4.25. The Grande (16 oz) cup is 33% larger but priced only 16% higher at $4.95. Meanwhile, the Venti (20 oz) cup is 25% larger than Grande but only 10% more expensive at $5.45. By doing this, Starbucks encourages its customers to upgrade their drinks and enjoy more of their delicious coffee at a perceived discount. This perception of a discount is particularly appealing in the context Starbucks’ reputation as a vendor of expensive coffees.
Promotions can significantly impact pricing strategies by influencing consumer perceptions of value, creating temporary price reductions, and driving sales volumes. Promotional pricing strategies may vary depending on market competition, product lifecycle stage, and brand positioning. They also vary by industry and are impacted by another of the four “Ps” – place.
There are many examples of how promotion can help companies optimize their marketing efforts and achieve their strategic objectives. Promotions like BOGO (buy-one-get-one-free) and coupons are obvious examples of how these two Ps are tied at the hip.
Many services, especially new ones in the technology and software industries, also offer what’s known as the “freemium” model – a tier that allows customers to use the service for free for a limited time and/or a limited-feature version of the service. Thus, the promotion is largely based on temporarily reducing the price to zero.
Pro Tip: Grocery stores are well-known for drawing customers into their stores by pricing one of the staples (eggs, milk, bread, etc.) at a jaw-dropping low price in the well-tested and borne-out belief that once a customer is in their store, they will buy more things than just the low-priced staple. In the industry, these are known as “loss leaders.”
Imagine you're in the market for the latest Apple watch. You can buy it in many different places—Apple's website, Amazon, Best Buy, Costco, and even Walmart. Despite the different channels, the retail price remains consistent. That's because Apple carefully manages its pricing across these channels, ensuring a uniform customer experience while navigating the diverse retail landscape.
Here's the kicker – selling through third-party retailers like Costco means Apple earns a smaller profit margin. Why? These retailers buy Apple products at a wholesale price lower than what a customer would pay directly, cutting into Apple's profits. But Apple knows the value of widening its reach, even if it means sacrificing some margin. That's why they strike a balance, leveraging their own stores for brand immersion while tapping into third-party retailers to cast a wider net.
Pro Tip: It's not just about making a sale; it's about the image each channel projects. Take Costco, for instance, known for reasonable prices and quality goods but with those trademark oversized packages. Meanwhile, Walmart offers relative bargains, and dollar stores are synonymous with jaw-dropping deals and unpredictable supplies. So, when companies like Apple distribute their products through these channels, they're not just selling – they're leveraging the reputation and image each channel brings to the table, drawing in customers that they may not get their own retail or online stores.
As our understanding of marketing evolves, so does the recognition that pricing plays a vital role in shaping brand perception and consumer behavior. Rather than viewing pricing in isolation, it's essential to integrate it seamlessly with other marketing efforts and holistically as part of the entire business ecosystem. By adopting a strategy where pricing is considered alongside promotion, product, and place, businesses can unlock new growth opportunities, manage their profitability, and better cater to the needs of their target audiences.
It's clear that treating pricing as a stepchild or relegating it to the domain of the CFO is not only outdated but fundamentally flawed. As we've discussed, there exists a symbiotic relationship between pricing and other elements of marketing. It's time for business leaders to recognize the importance of this paradigm shift and bring pricing “home” within marketing, alongside its siblings, product, promotion, and place.