Price and Value Communication
Effective price and value communication is essential in a pricing strategy, ensuring that potential customers understand the value offered by a product and how it stands out from competitors' offerings. If customers cannot recognize the differentiated value, they might opt for inferior products due to vaguely articulated benefits. To counter this, companies must communicate value effectively to protect their pricing strategies and enhance customers' willingness-to-pay.
Amazon's launch of the Kindle illustrates successful price and value communication. Without heavy traditional advertising and by establishing the "Meet a Kindle Owner" program, Amazon allowed prospective buyers to understand the Kindle's value through direct experience and positive word-of-mouth, significantly enhancing its market penetration.
Developing effective value-based messages requires a thorough understanding of how different products and buying processes need tailored communication strategies. For instance, cereal and data servers demand distinctly different approaches; similarly, approaches must vary for new versus repeat buyers, or individual versus corporate customers.
Value communication is particularly crucial when customer familiarity with a product is low or when the product offers innovative benefits that are not immediately apparent. Educating potential buyers about the specific benefits that justify a product's price can significantly influence their purchasing decisions.
Strategies for Effective Communication of Value
The communication strategies must reflect both product characteristics and the purchasing context:
Adapting to Product Characteristics: The communication strategy should consider whether the product is a search good, easily evaluated before purchase, or an experience good, which is harder to evaluate and requires more trust and assurance. For example, search goods benefit from clear, tangible value propositions, like GE’s energy-efficient bulbs, whereas experience goods might need endorsements or general assurances to communicate value.
Adjusting the Message According to the Buying Process: Effective communication also adjusts the value-based messages during different stages of the buying process. Early stages might focus on awareness and basic information, while later stages can handle more detailed value propositions and trade-off discussions.
Price Communication: Understanding how customers perceive price differences is important. The proportional evaluations of price, reference pricing, perceived fairness, and framing of price all influence how prices are perceived and can significantly impact the selling process. Communicating prices in ways that are perceived as fair and as gains rather than losses can improve customer receptivity.
Critical Aspects of Price Perception
Proportional Price Evaluations: Customers tend to evaluate price changes proportionally to the price level, not just in absolute terms. This understanding allows companies to strategically frame their pricing changes or discounts to appeal more effectively to consumers.
Reference Prices: This is what customers believe is a reasonable price for a product or service. Marketers can influence reference prices by comparing their prices against higher-priced items or suggesting higher past prices, thus framing their current prices as more attractive.
Perceived Fairness: Pricing must also contend with customers' perceptions of fairness, which do not always align with market dynamics. Price increases associated with improving service or covering higher costs are generally viewed more favorably than those perceived as exploiting market situations.
Gain-Loss Framing: How a price is framed—either as a gain or a loss—can drastically affect customer reactions. Pricing strategies that frame discounts as gains or avoid highlighting additional charges as surcharges can lead to positive customer responses.
Understanding these complex factors and integrating them into a cohesive communication strategy ensures that a product's value is clearly conveyed, influencing purchase decisions and enhancing the effectiveness of pricing strategies. Such strategic communication not only clarifies the value proposition but aligns it closely with customer needs and perceptions, leading to better sales outcomes and customer satisfaction.