The price is right…or is it?

The price of petrol, the price of property, the price of health care; price is in the media and in our mind. This may seem like a relatively recent phenomenon, born out of economic necessity, but as far back as the 19th Century we were equally fixated on price. In fact, the famous playwright Oscar Wilde once said, “These days man knows the price of everything, but the value of nothing.”

In marketing, price is also a frequent topic of focus. Over the years I’ve seen countless studies showing that customers are primarily motivated by price. From milk, to mainframes and mobile phones, when it comes to customer motivations, the price, apparently, must be right.

But what if price isn’t always right? Price may be what customers are saying in focus groups, and ticking in survey boxes, but what if something else is going on below the surface? Through a number of studies we’ve found that price is often a proxy for deeper motivations; here are two examples where the price isn’t right.

The price of control: 

For many customers, focusing on price can be symptomatic of a desire to gain or exert control over companies and categories. This is a common occurrence in categories like wireless or insurance, where customers feel dominated by large predatory providers, and as such, have a tendency to use price as a tactic to exert control.
Consumer Translation: I’m sick of being kicked-around by these guys; I’m going to shop around for the best price possible and make them work for the sale.

The price of uncertainty: 

Focusing on price can also occur when customers feel overwhelmed or uncertain in a category. This is a common occurrence in categories that require customers to process large amounts of information, or overwhelm them with technical jargon. In these instances, with an inability to work out which product matches their needs, many customers will use price as a form of shopping support.
Consumer Translation: I’ve got no idea which wireless router matches my needs; I’ll just go with the cheapest one and save myself the prospect of buyer’s remorse.

In both of these examples, customers appeared to be using price as a primary purchase motivation. However, in both instances, price was being used as a proxy for a deeper motivation, namely control or uncertainty. By providing the customer with an alternative way to feel in control, or by helping alleviate uncertainty in the category, an opportunity existed to address customer needs without compromising on price.

2 comments:

joolzey said...

Here's an opposite view towards your topic on the price of uncertainty - the price of certainty.

In a world where we are overwhelmed and confused by choices, price can help narrow our options down with the notion of the higher the price, the better the quality. Now this does not necessarily mean what we paid but rather the retail value as most of us can claim a moral victory by announcing the actual price we paid for an item on eBay and how much we saved at retail.

Having digressed, price can be used as a guide in selecting the "right" product when there's an abundance and confusion of choices and it all boils down to our willingness to pay for a particular product and the criticality of need. For example, if you're having a date over for dinner, you'd choose a more expensive pasta sauce as opposed to cooking for one.

My 2 cents...

Nick Black said...

Hi Joolzey, I like your thinking.

Price can definitely act as a form of ‘support’ in a category. Don’t get me wrong, I believe price can be an important part of the purchasing process. However, the problem is when categories start to believe that price is the primary driver of purchasing. When the main comparable in a category is price, you’re forcing people to shop rationally and often un-naturally. Take your pasta sauce for example. When you walked into the grocery store, you had very clear motivation in mind, a romantic dinner. Your primary motivation was a romantic dinner, not a price point. Because the category wasn’t segmented based on your primary meal motivations, you had to use price as a proxy, requiring you assess the entire range (waste time) and rationalise the purchase.