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Copy of How to stop customers from fixating on the price

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Ta Fang J

on 5 June 2013

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Transcript of Copy of How to stop customers from fixating on the price

How to stop customers from
fixating on the price? Using price structure to clarify your advantage Equalize the price Fight customer's disengagement with the
PRICE GOAL : Overprice to stimulate curiosity APPLE " What am I actually paying for ? "
" What aspect of this offer do I really need ? " May 2010 - Harvad business review
Marco Bertini SWATCH CONVERSE Brand equity
Brand image
Customers are part of a social uniform group
Choices about values
Develop trust from the clients Partitioning the price into components charges Advantages of uniformity One product divided into several prices but cannot be bought separately Increasing consumer's demand if applied properly
Positive effect on the customer's purchase intention
Impression of transparency
Invite to a closer analysis

= Brings attention of the client at first sight The low-cost airline strategy Basic price + surcharge Key of success of Ryanair "Reference-Dependence" : low cost companies are breaking all market rules Call attention to the value of your product / service Revise price structure Goodyear had a problem for a long time : People were unwilling to pay for the innovations which extended the lifetime of their tires

Solution : Goodyear priced its various models on the basis of how many miles they could be expected Managers typically worry about only determining the optimal price for a product With market testing and researches They often fail The example of Mining company
"Broken rock" pricing: Charging customers based on the fragmentation of the rocks extracted, rather than on the explosive spent Insurance company in the UK Innovative car insurance pricing Began charging based on real driving habits
they installed tracking devices in the policyholders' vehicles (tracks driven miles, seat belt wearing, turn signals used) Others insurers took the "pay-as-you-drive" innovation Other effect causes consumers stop and think " It's expensive, so it must be good" Studies show that customers don't automatically dismiss the higher priced product
they are motivated to take a closer look
they think it's better, has more features A little experiment There is a price range above which
consumers say

" Do I need this benefit or not? "
rather than
" What is the cheapest option in the store? " = Willful overpricing can help to reverse
the damaging trend of price lowering Starbucks offers a beverage that many other companies served cheap and put a premium price on it = Is the quality much higher? They made people rethink the importance of having a coffee break Reactions of customers Experiment : chose between a non-direct flight for 165 $ no-frills and a 205 $ flight with amenities for San José The more criticized this company is,
the more it grows People changed they
range of price Different amenities proposed Quality doesn't change the choice for the lump sum amenity Quality matters for clients how see the price partitioned = More people choose the expensive solution Consumers fully appreciate all
the range of products of the brand People don't complain about Ryanair
= Honesty from the company Clients not sensitive to margin costs Charge every song 99 cents People don't
have to look
at the price Clients see the Itunes' media
as one big selection Skin care company Charged 80% to 100% over nonnatural care brands Makes the consumer wonder that why their
products are so special.
The answer was the natural ingredients. The company's sales grew
annually by nearly 30% Even Apple follows the strategy of
overpricing " Apple reinvents the phone " "Performance and design.
Taken right to the edge." „Surprisingly, your best tool for
getting people to see beyond price
may be the price itself.”

Marco Bertini and Luc Wathieu At consumer products company, products are not commodities
Managers know their goods are different (name features, explain value, $ on innovation) Problems Customers don’t remember and
don’t really care about details

A lot of options on store shelves One main factor = the price
For consumers: products are commodities

Managers have to solve this problem Most markets are mature enough
Intense price-based competition
Undercutting prices is not good for the brand
Low expectations, growing disengaged The situation of the market =
Fixating on price (don’t care about marketing communications, innovations) The commoditized customer
To escape commodity status: do something…
not to your product, but to your customer

Reengage a buyer: offering in a surprising way Commoditized market: buy the same,
no expectations, same products 4 pricing moves to get
the consumer's attention Change the basis of your pricing structure
Stimulate curiosity
Partition a price into components
Same price tag on a range of options Common goal : pricing, customer attention Customers are fixated on price! Perils of price discounting EXPERIMENT
Participants (just moved to a new apartment)
Cable TV, internet, phone servicies > 1 vendor Heavy competition > marketers use all sorts of price promotions > can be counterproductive Base pack Max pack (different number of channels, 3 types of internet connection) = Final price is different Half of the participants have been
shown promotional offers (1-time discount) = Dramatic effect PRICE TAG Terms of exchange
Signal of quality Researches show that now 3rd aspect: Value of the product Companies prefer to keep customers focused on price, customers to appreciate the innovations they introduce Customers CAN forget the price because
there is no money to spare Clients follow their needs and will spend more money at the end
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