In the most common market situation, the decision to purchase products is processed by virtue of the compromise between the qualities assigned to the product (its image) and the price, in a comparison between the significant offer for the consumer.
But today it is increasingly difficult to sustain the image of brands due to a combination of factors such as: the pollution of stimuli that leads to the consumer having less and less possibility of engraving them in the mind, to the increasing competition of brands, at the speed of the innovations and the greater importance assigned to the actions in Points of Sale.
This leads to the sale price of the products playing a more important role, because: it increases the purchase decision by price, and also, the price not only represents the cost of the product for the consumer, but also stands as one more indicator of the product image.
Hence the need to permanently take care of the price policy, but how difficult it is to establish a correct price policy, and most importantly, with continuity over time !!.
Subjected to a constant torrent of offers, promotions and exposed to a growing variety of media, the consumer constantly changes his perception of the scale of values of the expensive and the cheap.
Is it possible as an entrepreneur to be able to have mechanisms that help to outline a coherent and sustainable price strategy over time?
Yes it is. There is a methodology called PERCEIVED VALUES that applies in this regard.
But does it have continuous results over time?
The fact of having to systematically measure the Perceived Values throughout the year allows this continuity.
What does Perceived Values mean?
It is the perception that is formed in the consumer's head by incorporating the offer of the product or service into their minds. This is manifested in the three or four main attributes of it, which would lead the consumer to their purchase decision.
How are the main attributes determined?
Through motivational research of a group of consumers, their purchasing behavior towards the offered product is analyzed. From this will emerge the three or four basic drivers that lean towards the decision to buy the product.
How are these attributes measured?
A percentage of importance is assigned (on a scale of 0 to 100%) to each of the attributes (the sum must obviously give 100)
On the other hand, in a comparison of each of the attributes with the ideal attribute (100%) each one is rated (0 to 100%)
How is the Perceived Value of the product quantified?
The weighted average that arises from multiplying the importance weight by the attribute qualification and adding that of all the attributes.
Where does the price variable come in?
The final price of the product must be associated with the Average Perceived Value of the Product
How, then, is the price set according to the existing competitors in the market?
Through audits at points of sale, the average price of the product in the market is measured.
On the other hand, it is investigated how the competing products qualify with respect to the main attributes previously determined and assigned values. Perceived Values are calculated
Averages of all competitors.
The Average Perceived Value of the market is calculated, to which the average price will correspond.
With a simple rule of three, the price of the product whose Average Perceived Value we have, as well as the market averages (Perceived Value and Price) are determined.
Naturally, pricing strategies can lead both to changing price and enhancing perceived attributes.
It is interesting to note that this methodology is applicable in any of the phases of the product life cycle (Launch, Growth, Maturity, Disappearance). What's more, the systematic "tracking" that must be done of the attributes that determine the purchase decision, give us an exact picture of the stage of the cycle in which the product is found.
It even anticipates the possible change in consumer behavior by being able to detect a new attribute that replaces one of the others.
In this way, the pricing policy to be outlined will be entirely consistent with the product strategy followed (from the latter we will detail different methodologies in future articles).
The impact on the professional management of this "Price Marketing" methodology will be reflected in an optimization of the contribution margin of the products, promoting future profitability in the company.
On the other hand, there will be constant monitoring of the perception that the consumer has of the business offer, being able to foresee and anticipate corrective actions for the image of the products.
In the globalized markets and turbulent environments in which companies will have to manage today and in the next millennium, it is necessary to adopt practical tools of Modern Management. The professionalization of decision makers in the permanent use of practical application methodologies will allow companies to develop sustained comparative advantages over time.
Finally we show through a simple example how it works:
Product: dulce de leche (Package of 1 kg)
Attributes: Creamy; Taste; Trust
Average Price: $ 70
IMPORTANCE WEIGHT ATTRIBUTES BRAND X BRAND AND BRAND Z
0.3 CREAMY 50 30 20
0.3 TASTE 50 30 20
0.4 TRUST 30 50 20
Calculation of perceived value (vp) of brands
MARK X: 50 *.0.3 + 50 * 0.3 + 30 * 0.4 = 42
MARK Y: 30 * 0.3 + 30 * 0. + 50 * 0.4 = 38
BRAND Z: 20 * 0.3 + 20 * 0.3 + 20 * 0.4 = 20
AVERAGE PERCEIVED VALUE = (42 + 38 + 20) / 3 = 33
The VP is associated with the average price:
33 is $ 35
Brand prices
X: (42 * $ 70) / 33 = $ 89
Y: (38 * $ 70) / 33 = $ 80
Z: (22 * $ 70) / 33 = $ 46
What should BRAND Y do if BRAND X drops its price to $ 80?
In other words, BRAND X has lowered the price by 10%.
BRAND Y has three paths:
1) Lower the price by 10% to maintain the PRICE / PERCEIVED VALUE ratio and thus not be perceived as more expensive.
2) Increase your Average Perceived Value in the same proportion as the competitor's price decrease. For this, it must enhance the creamy and taste attributes that in fact have less perception than that of BRAND X.
3) Take a middle path by lowering the price less (Example: 5%) than BRAND X but enhancing the creamy attributes somewhat (5%), taste compared to that of its competitor.
Final reflection:
The contribution of this article and of the successive ones to present in future editions tries to contribute and share knowledge and experience.
Interesting readers in Marketing & Management topics of high theoretical complexity, through articles with a strong landing on local reality, and examples of simple understanding, will be the mission that will guide us in our proposal.
