Brand Growth│Product Pricing Guide
As we all know, price is the only component of brand strategy that generates revenue, while the others only generate costs. It can be said that price strategy is the top-level design for designing brand profitability. From a strategic perspective, price is the strategic goal that a brand sets for its business. From a commercial perspective, price is the ultimate condition for whether a business can complete a closed loop. For a brand, pricing is an extremely important process and tool for acquiring user value. The effectiveness of other factors such as positioning, products, channels, and communication all need to be reflected through pricing. If pricing fails, the brand will not be able to obtain the portion it deserves. Therefore, formulating and implementing pricing strategies is one of the core challenges facing brands. Whether a brand person or marketer understands pricing is the criterion for judging whether he or she is an entry-level person. 1. Understanding Price and PricingPrice is a manifestation of value, and value is the basis for price determination . Pricing is to set prices for products, including setting initial prices and price adjustments during the operation process. So what is price? 1. PriceAn economic term that refers to the use of monetary form to express the value of a unit of product , that is, the price is the unit value. This sentence shows that the essence of pricing is to set a price for value. Therefore, to understand price, we must first understand "value". All products that can be circulated, that is, what we call commodities in daily life, contain two factors: use value and value . Use value describes the natural attribute, that is, what kind of utility it brings to people; value describes the social attribute, which refers to the exchange value that a product must have in order to circulate. Value connects the value and price . The connection and difference between the two is also reflected in the fact that the existence of use value is not based on exchange value , but exchange value must have use value . In the barter era, the exchange value of an item was reflected in its ability to be exchanged for other items of equal value, but this was very troublesome, so currency was invented to express the exchange value. Therefore, the exchange value is also called the commodity value. This shows that: first, a product must have use value and exchange value to be called a commodity; second, the value and value of a commodity are mainly reflected in its price. In reality, users want to obtain the use value of a commodity, while companies provide products to obtain exchange value . In modern market economics, price in a narrow sense refers to the total amount of money charged for a product or service, the monetary price that the buyer needs to pay in the transaction ; price in a broad sense refers to the value paid by the user for the benefits of obtaining, owning or using a certain product or service . Therefore, price is more than just a number on a label.
2. There are three main theories about how prices are formedThe first is the labor value theory , also known as the commodity value theory, which holds that the price depends on the cost of producing the product , such as production cost, labor and socially necessary labor time. The value of a commodity is directly proportional to the socially necessary labor time required to produce the product, and the price of a commodity is positively correlated to its value . The second is the marginal utility theory of value , which holds that prices depend on the marginal utility of products. Because marginal benefits have diminishing returns, only the utility of the last unit shows the change in value due to changes in scarcity. The key point of this theory is that value simply represents the relationship between human desires and the ability of products to satisfy such desires, that is, users' feelings and evaluations of product utility. It believes that utility is the source of value, and the combination of scarcity and utility is the condition for the formation of value. Here we need to mention a concept closely related to marginal utility value, called demand price, also known as willingness to pay price. It is the price that users are willing to pay subjectively , which is different from the actual payment price. The two are almost never equal (it is difficult for users to judge the value behind the price). The willingness to pay price usually decreases as the marginal utility of the product decreases . The third is the theory of supply and demand equilibrium . It believes that the price is determined by the equilibrium point of supply and demand . This equilibrium point is formed by the mutual offset of the forces of supply and demand, that is, the price level reached when the supply and demand are equal. The price of this equilibrium point is called the equilibrium price. Let’s talk about demand and supply in detail here, because price elasticity will also be discussed later. Demand refers to the quantity of a product that buyers are willing and able to purchase under certain time and price conditions. Market demand is the sum of all buyer demands for a certain product in the market. The key factor affecting demand is product price. Demand and product price move in opposite directions , that is, when product price rises, demand decreases , and the curve tilts downward to the right. It should be noted that changes in demand caused by changes in product prices are changes in demand quantity , while changes caused by related products, user income, and preferences are overall changes in demand. How to understand it? The change of demand quantity changes along the demand curve. When the price rises, the demand quantity decreases along the line. The change of demand is the shift of the demand curve to the left or right. For example, if users switch to buying substitutes, the curve will shift to the left. Supply behaves in the opposite way. Considering only the product price factor, supply and product price change in a positive direction , and the curve tilts upward to the right. Similarly, the change in supply here also refers to the change in supply quantity. As shown in the figure below, the point where the supply and demand curves intersect is the equilibrium point . The price at this point is the average market price level, called the equilibrium price, and the supply and demand quantities at this point are called the equilibrium quantity. In reality, equilibrium is accidental, temporary and relative, and the game between supply and demand is a cyclic process of balance-imbalance-rebalance. This is the legendary invisible hand at work. We can understand that the price level always fluctuates up and down at this point . In other words, it can also be understood as the factors that affect prices: the basis of prices is the value determined by labor , and is also affected by the marginal utility rule and changes in market supply and demand . That is, labor and cost determine the basis of product value, but changes in use value (utility), scarcity, exchange value, and market supply and demand will all have an impact on product value. 3. In addition to the above, there are several concepts that need to be understood clearlyPrice elasticity of demand . It indicates the degree to which demand responds to price changes . It can be expressed by the price elasticity coefficient of demand, which is equal to the change in demand/the change in price.
Different products have different price elasticities. The price elasticity of a product depends on : the importance of the product (the more important it is to the user, the greater the elasticity), the number of uses (the more uses, the greater the elasticity), the number and similarity of substitutes (the more substitutes, the greater the elasticity), and most importantly, time - time always beats everything. The longer the time, the greater the price elasticity of product demand . There are two other elasticity theories related to demand:
4. Here is a more detailed introduction to the "utility theory"At the level of user factors that influence demand, in addition to user income, there are also user preferences, which are derived from utility. Utility . Refers to the ability of a product to satisfy people's desires (the psychological state of wanting something but not getting it), or the degree of satisfaction felt by users . Although utility has commonalities, it is more of a subjective psychological feeling and has no objective standard. There are two theories about utility, namely cardinality theory and ordinal theory. The difference between the two is whether utility can be directly measured . Cardinality theory , or marginal utility theory, states that total utility increases when a product is used, but marginal utility always decreases . Closely related to marginal utility is the marginal utility-determined value theory mentioned above. In economics, there is another concept closely related to marginal utility, called consumer surplus, which refers to the difference between the price a user is willing to pay and the actual amount of money paid. The price a user is willing to pay depends on the size of the marginal utility . Ordinal theory , also known as preference theory, expresses the degree of user preference for products and personal subjective psychology. An important concept related to it is called consumer equilibrium , which means that under the conditions of personal income (budget constraint) and price, the user will choose the optimal consumption combination he can afford . Consumption combinations vary greatly. Under conditional constraints, users will only prefer one of them. This combination can be a product or a group of products. The simplest way to understand it is that, for example, in a breakfast shop, two steamed buns are enough to fill you up, and the remaining steamed buns are of little value to the user. So how can the third steamed bun be valuable to the user? Either the more you buy, the cheaper the price, so that the user's marginal cost is reduced and the price is set by quantity ; or, buns are bundled with beef noodles or other products and sold as a package, using price anchors to eliminate price sensitivity . By using the law of diminishing marginal returns, we can study changes in user demand. In addition to making reasonable production decisions and price adjustments, we can also guide brands to innovate in a timely manner, update and iterate products, and establish and maintain a product structure that adapts to user needs. By using the law of consumer equilibrium, we can accurately analyze user income levels, psychological preferences, and their own conditions, which will help to correctly make production decisions, product prices, and adapt to market demand with different product combinations. 5. For the seller, that is, the supplier, the concepts closely related to it are supply price elasticity, production function, cost function, market structure, etc.A brief introduction: Supply price elasticity refers to the degree to which supply quantity responds to changes in product prices . Due to the law of supply, changes in supply quantity and price are in the same direction , that is, when prices rise, supply also rises. Changes in product prices will affect the supply side's adjustment of output and input of production factors . The input of production factors is cost , including labor, land, capital, etc. The production function is used to describe the relationship between input of production factors and output, which forms the production level and production experience of different enterprises . Cost refers to the monetary cost of investing in production factors, which generally refers to the short term, because nothing is constant in the long run. The total short-term cost is equal to the sum of total fixed cost and total variable cost . Fixed costs refer to production expenses that do not change with changes in the company's output and sales revenue in the short term, such as depreciation of factory equipment, rent, interest, fixed salaries, etc., which are not related to production levels. Variable costs are costs that change directly with changes in production levels, such as raw material costs, production staff wages (floating), etc. If there is no production, variable costs are zero. Since buyers and sellers together constitute a market, different market structures are formed due to different participants and forces. It refers to the comprehensive status of the number of buyers and sellers in a market, their size distribution, the degree of product differentiation, and the difficulty of new enterprises entering. In simple terms, it is the competition status and degree of competition for a certain product or service . Its division and judgment can be referred to the following figure: Under different market structures, the seller's control over prices is different. In a perfectly competitive market, both buyers and sellers are just passive recipients of market prices; in a completely monopolistic market, because of various monopoly factors, the monopoly enterprises enjoy the pricing power, and the buyers are the recipients of the prices; in a monopolistic competition market, there is both monopoly and competition, so the sellers have a certain degree of decision-making power over prices... Here is another extension, but it is ubiquitous in the real world - price discrimination . Among the four market structures, the monopoly market is the easiest to implement price discrimination , because there is only one enterprise in the monopoly market, which has full pricing power. Price discrimination , also known as differential pricing or differential pricing , is not discrimination in the conventional sense. It refers to setting different prices for products in order to obtain greater profits . It can be divided into three levels according to the degree of deprivation of consumer surplus. First-degree price discrimination . Also called perfect price discrimination, it refers to pricing each unit of product according to the user's marginal willingness to pay, that is, selling it at the highest price the user is willing to pay. It can be called per capita pricing , which can be regarded as "serving different dishes to different people". Second-degree price discrimination . All products are divided into groups, and each group of products is priced according to the user's marginal willingness to pay. It can be called quantity pricing , such as more purchases, more discounts, and half price for the second cup. Third-degree price discrimination . Based on different demand price elasticities, it refers to dividing consumers into two or more groups with different demand price elasticities, and pricing them differently, also called group pricing . In the real world, the so-called "groups" are actually mainly focused on "people who have money and are willing to spend money", with the goal of getting them to spend more money . In economic terms, groups with low price elasticity (price insensitive) are priced higher , and vice versa. The nemesis of price discrimination is the law of one price . It is difficult to implement first-degree discrimination in a highly transparent market. In reality, there is at most second-degree and third-degree discrimination, which is implemented according to different products, market segments, distribution channels and purchasing scenarios. It is often manifested as "geographic discrimination", "population discrimination", "relationship discrimination" and "time and opportunity cost discrimination" . The development of the Internet has not eliminated price discrimination. Information technology has made price discrimination more legitimate, turning it into a dynamic combination pricing based on data and behavior and with a high degree of market segmentation. The above content is to explain the nature of price, what influences it, and what impact changes in price itself will bring. In real economic activities, any brand’s product pricing cannot be separated from factors such as product, demand, substitutes, competing products, and elasticity. Otherwise, pricing will fail. 2. Importance of PricingBorrowing the words often said by bosses: Pricing determines life and death. The importance of pricing has been mentioned at the beginning, but if we want to explore it in detail, we can use an example to illustrate: A certain ice spring launched a "high-end drinking water" brand in the market in 2013. At least that was the positioning. The selling price seemed to be around 4 to 5 yuan, and its competitors were products such as KunXshan. At first glance, there seems to be nothing wrong with its pricing, but as consumers, we don’t think that Evergrande Ice Spring can live up to its positioning as “high-end drinking water”. Everyone can understand that the various sub-components of the brand strategy need to revolve around brand positioning and the various sub-components need to work closely together, but the marketing mix of Evergrande Ice Spring actually gives people a very confusing feeling. First, there is a problem with the brand strategy. In terms of brand extension, a corporate brand that builds and sells houses has been extended to the food and beverage category, which is tantamount to challenging consumers' cognition; the positioning is vague, and it is both deep and good water and healthy and long-lived. It is difficult to come up with a differentiated "non-surface water" positioning, but it has not been persisted. Secondly, the product design and packaging are also very poor; the distribution channels are also very chaotic, and its shadow can be found in convenience stores and community stores. In contrast, Mouyun is also high-priced and positioned as high-end, but it only appears in high-end places or high-end scenes. Moumou Bingquan’s approach is obviously inconsistent with its high-priced positioning. Furthermore, the marketing promotion is also very chaotic, and the advertising slogan is changed almost once a month. After that, the entire product line experienced two price cuts. The current retail price has dropped by up to 50% compared to when it was first launched, but the price cuts did not improve its sales difficulties. It was originally competing with high-end brands, but now it has directly changed to competing with other ordinary drinking water. From the case of a certain ice spring, we can see that pricing is extremely important. It is not only the initial price, but also includes the subsequent price adjustment - pricing. It is the strategic match of the brand. The so-called pricing is the intuitive expression of the brand strategy, which determines the target user group, market positioning, profit margin and long-term development. 1. Pricing is closely related to the target user groupUnder the principle of brand strategy as the core driving force, of course, products, pricing and other activities should be carried out around the brand's target users. However, if the pricing is chaotic, that is, the pricing does not match the target users, the price will lose its screening effect, the target user group will be lost, and the non-target user group will not agree. 2. Pricing determines who the brand competes with and how intensely, the strength of the competitors, and the size of the possible market space.Choosing a brand with a high-end image as a competitor, or placing your product among more expensive competitors, people will assume that you are also a high-end brand or that you can increase the value of the product. It is lonely at the top, and the competition in the high-end market is far less fierce than that in the low-end market, which also means that the market space for the brand may be larger. 3. In addition, as mentioned above, price is a manifestation of value, and value is the basis for determining price. In other words, price implies value.Especially when new products are launched, there is not much information about whether the product is valuable. Users will measure and judge by price and consider whether the product is worth buying. Of course, this also requires that once a price is set, the user value behind the price must be given. If the price is too high and the product and brand cannot support it, users will not buy it, and even if they do buy it, they will not buy it a second time. If the price is lower than the user's price expectation or reference price, users may have negative thoughts based on the experience that "you get what you pay for" and "cheap goods are not good" - "Is there a problem with the quality of the product?" etc. 5. Pricing determines brand profitabilityIt is better to understand it with a simple formula "Revenue = Price X Sales Volume". Price not only directly affects sales volume, but also affects revenue together with sales volume. Compared with other marketing mix factors that are all costs, price is the most important tool for achieving brand profitability. 6. From the perspective of business operationsEvery activity of an enterprise is an economic activity that creates value for users. This process is also called the value chain. Only when the value created exceeds the cost can there be profit. Since all other elements in the marketing mix are costs, pricing will eventually affect the input of other factors, that is, different pricing means different resource allocation . It is like, if the company does not make money, how can it hire senior talents with a high budget? Without senior talents, how can you create better user value? If the pricing is wrong, it will fall into negative feedback. From the above, we can actually see that price is the focus of the interest relationship of 3C (Corporation, Customer, Competitor) . For enterprises, pricing is a tool to achieve brand profitability, and profitability is the goal of pricing. At the same time, pricing can be used to build brand positioning and image, and highlight brand value. For customers or users, pricing is a tool to perceive and measure brand value, a tool to screen users, and an important factor influencing demand and purchasing decisions. For competition, price is competitiveness and a tool to cope with market competition. If the pricing is wrong, it will be fatal, which means the loss of target users, the disapproval of non-target users, the wrong market positioning, and a significant increase in costs. 3. Pricing MethodOverthrowing cost-based calculations, a war of value rather than price Since pricing is so important, how should a reasonable price be set? Although with the development of the times, there are many different specific ways of pricing (some of which will be introduced in the middle), there are generally only three types: 1. Cost-oriented pricingCost-oriented pricing is a pricing method that uses product cost as the main basis. If you want to make money from the product, just add profit to each cost (production, distribution, and sales). The formula can be expressed as: product price = product cost + tax + enterprise profit + wholesale enterprise profit + retail enterprise profit. Specific methods include cost-plus pricing, target profit pricing, and break-even pricing: 1.1 Cost-plus pricing The price is determined by adding a certain percentage of markup to the unit cost of the product. The basic formula is: Product price = unit cost x (1 + markup rate) Unit cost = unit variable cost + fixed cost / expected sales volume. It should be noted that "a certain percentage of markup" is often the expected profit margin of the product, but there are two ways to calculate it: based on cost, the formula remains unchanged: Product price = unit cost x (1 + markup rate); and based on the sales price, the formula is: Product price = unit cost / (1-markup rate) For example, if the unit cost of a product is 100 yuan, without considering other factors, if the company hopes to have a 20% profit on the product cost, the product price should be: 100 X (1+20%) = 120 yuan; or if the company hopes to have a 20% profit based on the sales price, then the product price should be: 100 / (1-20%) = 125 yuan. The former is very convenient for calculating the ex-factory price, while the latter requires considering the channel markup rate. In reality, the markup rates of different channels are different. 1.2 Target Profit Pricing It means determining the target rate of return expected based on the total cost and estimated total sales volume, and then calculating the price. The basic formula is: Product price = (total cost + target profit) / total sales volume, where target profit = investment amount x target rate of return, target rate of return = 1 / payback period, total cost = fixed cost + variable cost. 1.3 Break-even pricing Also known as break-even pricing or break-even pricing, it means that under the condition of a given sales volume, the price of a company's products must reach a certain level in order to break even and offset income and expenditure, that is, the price must be used to break even. Therefore, the price must be set so that at this price, the revenue can offset the cost or reach the expected profit target. The formula is: product price = unit variable cost + fixed cost / total sales volume. It is generally used to make production decisions and to make pricing decisions in combination with target profit points. Of course, the actual situation is much more complicated and depends on production levels, production experience, and cost functions, which are different for each company. 1.4 Marginal Cost Pricing The premise of this pricing is that the market demand curve and marginal cost curve are given, and the intersection of the two curves is used to determine the product price. In a perfectly competitive market, average revenue, marginal revenue, and demand curves are the same, and even the equilibrium price is the same. Only when the marginal cost is equal to the above curves can there be no loss. In other words, the price is equal to the average variable cost. In this way, on the one hand, the brand is guaranteed to obtain the maximum profit, and on the other hand, it is guaranteed that consumers can get low prices and thus obtain the maximum utility. In a completely monopolistic market, the price needs to be set above the marginal cost and supply restrictions need to be imposed in order to obtain excess profits. However, it is also necessary to pay attention to market demand conditions, that is, the price elasticity of demand. If the price elasticity of product demand is large, the price needs to be lower. In general, cost-oriented pricing is completely a seller's perspective. It only takes into account the impact of costs and the space between management costs and prices, but does not consider changes in market demand, price elasticity, competition, and price levels. It is difficult to set the most reasonable price, and the response to market changes will not be timely enough. 2. Competition-oriented pricingThe price of similar products competing with each other in the market is used as the basic basis for pricing, and the price of goods is determined by referring to the cost and supply and demand situation. The reason is simple, because users often judge the value of a product based on the price of competing products. Simply expressed by the formula: that is, market price ≈ competitor market price. There are mainly the following pricing methods: 2.1 Market-based pricing Setting prices based on the current price levels of similar products, that is, competitors, is also the simplest pricing method that is widely adopted. Simply put, it is to follow the crowd. However, it is mainly applicable to products with low demand elasticity or supply and demand tending to balance (monopolistic competition market or perfect competition market, no pricing power, no influence on price), and the price is kept at the market price level to obtain average profit. If it is set too high, no users will buy; if it is set too low, demand and profit will not increase. With this pricing method, the brand almost does not need to understand the user's reaction or sensitivity to price, and it will not cause any price fluctuations. As long as the cost can be reduced, more profit can be obtained. 2.2 Competitive Pricing Method In addition to following market trends, in order for a brand to survive and develop, in reality, prices can generally be made higher or lower than competitors' prices with the cooperation of other marketing means or methods, and they do not necessarily have to remain completely consistent. Of course, if you set a higher price than your competitors, you must have better product quality, service level, satisfaction, product image, etc. than your competitors. For the sake of survival and profit, you can also choose to set a lower price than your competitors. Therefore, competitive pricing is a very aggressive pricing method. The disadvantage is that it is easy to fall into vicious price wars. Pricing according to competition is of course a way to maintain market share, but it is very likely to ignore the profitability of the product. And maintaining low prices will inevitably require keeping costs low, which will lead to the inability to update and iterate products, fall into a vicious cycle of price wars, and then affect the brand image and brand value. 3. Demand (value) oriented pricingThis method is also called user-oriented pricing, which refers to a pricing method based on the demand intensity, value perception and price tolerance of users in the market. Simply expressed in a formula: target cost = market price - tax - target profit - management fee to be shared. Specific pricing methods include: demand difference pricing, reverse pricing, and perceived value pricing. 3.1 Demand Differentiation Pricing This is the price discrimination mentioned above, but it is easier to implement price discrimination in a monopoly market structure. As a product of the game between buyers and sellers, price discrimination is ubiquitous in reality. When pricing products, different prices will be adopted based on factors such as different users (demand intensity), different product forms (price and cost are disproportionate), different purchase locations (hotels versus convenience stores, scenic spots versus urban areas), and different purchase times (such as season). As price discrimination, its application has some prerequisites: First, the market can be segmented, and the demands of each segment are different. Pricing must also adapt to the demands of the segment so that users will not be disgusted by the price difference. Secondly, the boundaries of the market segments can block the free entry and exit of users and the resale of products. Strict supply control is usually adopted to prevent cross-selling and other situations. Or due to product characteristics, resale is impossible. Products with a high proportion of services and pure service products are particularly suitable for differential pricing; Furthermore, the price elasticity of each market segment is different. The market with high elasticity should be priced low, while the market with low elasticity should be priced high. Only in this way can the total sales revenue be maximized. At the same time, there should be no competitors or competitors cannot compete on price in the high-priced market. The most important point is that differential pricing will not lead to increased costs in the market segments, especially when the upper limit of this increase exceeds the income from high prices, which will instead be counterproductive. 3.2 Reverse Pricing The so-called reverse pricing method refers to giving the pricing power to the user. In actual application, the purpose is to calculate the cost and profit through the product price acceptable to the user, and then calculate the wholesale price and retail price that may be involved in the product circulation process . Ex-factory price = product retail price X (1- wholesale-retail margin) X (1- sales-purchase margin). Among them, sales-purchase margin = (sales price-purchase price) / purchase price, wholesale-retail margin = (retail price-wholesale price) / the difference between wholesale price. Let’s take the calculation problem from the above text as an example: if the product price acceptable to users is 150 yuan, and the ex-factory price for calculating profit based on the known cost is 120 yuan, that is, the intermediate channel fee is 30 yuan. If RT-Mart is retailing, then the price is equivalent to 120 yuan and the selling price is 150 yuan, then the sales margin is 20%. The key to using the reverse pricing method is how to correctly evaluate the market's acceptable product price level (retail price). The main criteria are as follows: the market supply and demand situation of the product and its changing trends, the product's demand function and demand price elasticity, the price level that users are willing to accept, and the price comparison with similar products. 3.3 Value Pricing In the previous article "Brand Product Development Guide", a concept called user value was mentioned. Two important concepts strongly related to "user value" are "user surrender value" and "user perceived value". Although there are discrepancies in the market research on user value, which leads to confusion among many people about these two concepts, there are still some basic consensuses: User-transferred value, or user-perceived value, refers to the actual value transferred to users and felt by them, expressed as the difference between total value and cost . User perceived value refers to the overall evaluation of a product or utility after the user has weighed the perceived benefits and the perceived costs. It is the user's subjective perception of the value of a product, as distinguished from objective value . So what is the difference between user value, cognitive value and perceived value? User value refers to the total value , which refers to all the benefits that users expect to obtain from a given product or service. The corresponding concept is total cost, which refers to all expenses incurred during the user's purchasing decision and use process, including money. Cognitive value is the monetary difference between total value and total cost . It is relatively objective and is positioned from the perspective of the enterprise. It is based on the comparison of what users get and what they pay in possible choices. Cognitive value must be based on objective value - the objective value that the enterprise believes its products or services can provide to users. User perceived value is relatively subjective and is based on the user's perception. In fact, it refers to the result of different people's subjective cognition of user cognitive value - a self-judgment of the user on the value of the products or services provided by the company. In general contexts, we refer to the creation of user value as the creation of product value, which refers to objective value. The cost that users have to pay is equivalent to the price paid for the product. Cognitive value can be considered as the product value minus the premium part of the product price. Perceived value is the user's subjective judgment and evaluation of cognitive value, such as size, amount, value or not... Therefore, the user's perception of the value of a product can determine the upper limit of the product's price . If the product price exceeds the product's value, or if the user feels that the value is less than the product price, then he or she will not buy it. Competition is only an influencing factor between the lowest price determined by product cost and the highest price determined by perceived value . Therefore, cost only provides the bottom line for pricing . If pricing can only show the coordinates of various production factors, this pricing is nothing more than telling users how much time they have saved. Therefore, the best pricing strategy is to set prices based on the value provided to users and the perceived value of users . How does this pricing method determine the optimal price? As shown in the figure below: Cost is actually the lowest price. If the price is higher than the cost, the brand can make a profit. Perceived value is the highest price, which means the price cannot exceed how much the user thinks the product is worth. When the price is between these two points, users have the motivation to buy and the brand can make money. The so-called optimal price is to find a balance or fair point between cost and user perceived value. This point can satisfy the demands of both the brand and the user. The price should reflect the brand's confidence in the product and be reasonable so as to protect the interests of the user . Similar to the supply and demand equilibrium mechanism, when the price is at this point, the brand profit is maximized, but it can also have a strong appeal and purchasing desire for users . That is, "great value for money", "good value for money", and "cost-effectiveness" are often mentioned in daily contexts. It is a fact that users have such expectations for prices . As mentioned above, price is a manifestation of value, so the essence of pricing is not so much to set a price for a product, but to set a price for "value" or "user's value perception" . This corresponds to what Kotler said: marketing is to sell the price with the product as the carrier. What you really sell is "price" rather than "product". The product is just a carrier to make the price seem reasonable. In reality, when users buy products, they have no idea or cannot judge the cost. They only care about whether the price they pay is reasonable, whether they can get the value they expect or expected, and how much perceived value is. Only when the value provided by the product is consistent with the cognitive value of consumers can the product be effectively realized. Therefore, the correct pricing method should be to shift from cost-oriented to user-oriented, to cognize value for users, and to price users perceived value, first determine what value to provide to users, determine the acceptable pricing for users , and then determine the cost. Let’s first introduce the pricing method derived from this: 3.3.1 Value pricing method This method refers to trying to make the price of the product reflect the objective value of the product and providing a suitable combination of quality and good service at reasonable pricing. The fundamental of this method lies in "fair price" and "suitable, or higher value" . The difference between the value pricing method and the cognitive (perceptual) value pricing method is that the value pricing method belongs to the "standard value pricing method" . Because users' perception of product value is subjective, but it does not equal the objective value of the product. It should be noted that the goal of value pricing is to narrow the gap as much as possible , rather than to make this gap beneficial to the brand through marketing methods other than pricing . We can understand it as follows: the value pricing method aims to pursue pricing according to objective value, that is, the price is determined as much as the user value the product can provide . For example, IKEA, Muji, and Perfect Diary are actually value pricing methods, including but not limited to launching cheap versions of well-known brands, enhancing their image, adding attributes and services to increase value to maintain the established price, or providing higher quality products at the established price and current products at the lower price... In practical work, the essence of the value pricing method is to give users higher quality at the same price and win with quality, rather than win with price, and give users higher value at the same price, that is, to be better at exploring user value and making value innovation than competitors. The so-called mining of user value and doing value innovation is not blindly stacking values, but mining and innovating the value that users value . I introduce a simple method: First, when developing a product, figure out what the potential user group bids for the product . Second, what are the factors that users value and can use as references and distinguish products? You can use value modeling tables to do this step . First determine the frequency of use of each value item . This will let us know the importance of the value item and how many users will buy the product because of this value; then show the previous answer to a group of new potential customers and ask them which products they will associate these values with . Different users have different budgets, which can be reflected by how much monetary cost they are willing to pay for the product. 3.3.2 Cognitive (perceptual) value pricing method This pricing method, also known as the true user-oriented pricing method , refers to a method of pricing based on the user's perceived value of the product . Compared with the above value pricing method, the cognitive (perception) pricing method belongs to the "premium pricing method" , which means pricing based on the user's understanding of the product and the value he feels. The brand will find ways to influence users' awareness of the product value through non-price marketing methods, form values that are beneficial to the product and the brand, and then price based on this . Using the cognitive (perception) pricing method generally requires several steps: judging the user's perceived value and accurately grasping the user's perception of product value is the key and key points of pricing; positioning and conceptualizing user's value ; quantifying user's perceived value ; carrying out effective promotions, conveying the user's perceived value to the target market , and combining the quantified affection value with other non-price factors to formulate product market prices . There are two key points in the cognitive (perceptual) value pricing method: one is how to accurately measure the degree of user perception value, and the other is how to use marketing strategies to influence users' perception value . To defeat magic with magic, whether it is valuable depends on the user's subjective psychology. In fact, it is a comparison. The cognitive (perception) value pricing method requires testing and evaluating products with similar products in the market , so that users can evaluate them. Here are 3 methods: 1. Direct price evaluation method . It refers to letting users estimate the price of each product. The estimated price reflects the total value of the user purchasing different products. The brand can price the product based on the user's estimated price . Generally speaking, in the estimated price ranking, the median represents the user's acceptance price for this type of product, the maximum number indicates that the user believes that a certain product has the highest total value among such products, and the minimum number indicates that the user believes that a certain product has the lowest total value among such products. Therefore, when pricing a product, it is necessary to consider both the user's ranking of the estimated price of the product and the user's acceptance of this type of product. 2. Direct cognitive value evaluation method . Users do not estimate the price of the product, but allocate 100 points to similar products in the market, thereby reflecting the cognitive value of each product, and price the product based on this . The product with the highest points means that the price can be set higher than the market average price of such products, while the product with the lowest points means that the price can only be set lower than the market average price. 3. Diagnostic method . The specific methods of the diagnostic method are as follows: First, ask the user to assign 100 points to each product feature to reflect the importance of each feature to the user and mark the importance weight; second, according to each product feature, ask the user to assign 100 points to products of the same type of the market but different brands in turn to reflect the user's evaluation of the product characteristics of different brands and mark it as product characteristic value; finally, multiply the importance weight with the corresponding product characteristic value and then sum it, that is, the user's cognitive value judgment of products of different brands. The highest score means that the product's cognitive value is higher, and the price can be set higher than the market average price, otherwise it should be set lower than the market average price. The core idea of the cognitive (perceived) value pricing method is that the performance, quality, service, brand and price of the product have a certain understanding and evaluation in the user's mind. Users often judge the price based on their understanding, feeling or understanding of the product, comprehensive shopping experience, market conditions and similar products . When the price is roughly consistent with the user's understanding of the product value, users will accept this price. Therefore, a brand must realize the value it promises, and also enables users to perceive this value through marketing methods. At the same time, it is also necessary to ensure that users can correctly evaluate the value of the product . If the former is not done well, the user will not be deceived for the second time, and if the latter is not done well, it is useless. Therefore, the brand needs to fully understand the user's evaluation background and decision-making process. We look at the two value pricing methods together and summarize the human words. The core of this method is only four words: high quality and high price. High quality means that high value or higher sense of value is required. High price means price matching value and fair price, rather than blindly high or low price . Feeling value and pricing product planning, thinking about how to improve perceived value awareness (perception) value pricing method is the user's perceived value, so what determines the perceived value? As mentioned above, there are many factors that affect perception, including the brand itself and user experience, and the two are compared. For new brands, or product planning, there is no doubt that the product is the first priority. In the previous articles, what is the value delivered to the user composed of? User value = functional value + psychological value (emotional value + meaning value) , and of course also includes monetary value (that is, how much cost this price saves the user). For easy understanding, it can be understood by tie or diamond. The functional value of tie is the decorative effect of human body. Its psychological value is social identity, self-cognition, emotional emotions, positive association, etc. , that is, cognitive (perception) value = functional value + psychological value . This is the value that users can perceive. The greater the psychological value, the more expensive the price. Then we have to think about how much a tie can sell? Ordinary tie, like the kind worn by nightclub waiters, may cost more than ten yuan, and its functional value is the decorative effect; but when emphasizing investment in materials, materials, labor, design, etc., and emphasizing experience and emotional value, it actually provides a layer of psychological value compared to ordinary tie, and at this time the tie can be sold more expensively; when further linking the tie with successful people, business elites, fashion, and even love, marriage, and family, we can think that it provides all psychological value, that is, the product provides spiritual value, so it can be sold at a higher price. . In fact, the so-called large number of new brands that we see in consumption upgrades. In addition to upgrading and innovation from different angles (hard), it is more important to learn to tell stories (softness) and give products higher value connotations . Therefore, they can price value rather than cost, and their pricing is higher than homogeneous old products, and their profits are also greater than old products. There are also things like Yuanqi Forest, which only change users' perception of product and function value. Wang Baobao only adds ingredients to traditional cereals and makes innovations in taste. Ramen says that compared with traditional instant noodles, it will increase the eating noodles to lifestyle... We will find that no matter what kind of product it is, as long as the product's target market and product differences and competitive conditions are fully considered, the market positioning and value composition are analyzed, and the product's functional value and psychological value are differentiated according to the characteristics, and the product's image or brand image can be improved, so that the product can be sold at a price . The key to cognitive (perceptual) value pricing is user value perception , that is, pricing needs to be transferred to the user's perspective , and the pricing logic becomes to determine the value first and then the price . Of course, value revolves around brand positioning. What is your positioning ? What kind of value do you provide , is it divergent from the positioning? Then price your value , not just cost or follow the opponent. How to improve the perceived value of users? We can improve from the aspects of product value composition: Functional value : The product can be broken down into five levels, and we can make changes, such as redefining the product, adding new functions, increasing product added value, changing the form of the product, packaging, design, improving product image, performance, etc. (including allowing users to perceive it in marketing activities)... Psychological value : Integrate culture, social, art and other connotations to create scarcity, identity symbols, user image, and personalized traits... 4. Price reference and pricingThe user does not know the cost, but will compare. In addition to working hard on products, price as the first perception medium is particularly effective. In reality, when a brand sells a price for a product , users know very well what their price tolerance (budget) is . Before seeing the product, users will select the budget brand based on their price tolerance, and then they will understand the specific product, that is, price perception first, product quality, performance, etc. are perceived in a row in the back. But users are not just price recipients. They usually actively process price information and understand prices through other factors such as previous purchasing experience, formal information channels, informal information channels, point of sale or online resources . Purchase decisions are based on the user's psychological price and the current actual price they perceive, rather than based on the asking price of the product . Understanding how users form their perception of price is the focus of marketing efforts. 4.1 Reference priceRefers to the reference point considered by users when making purchase decisions . The reference price can be the price of other similar products on the market or the price paid when purchasing the same product before . The impact of reference price on people's purchasing behavior is very important because it can affect people's understanding of the value of the product. In addition to competitor pricing, the reference prices often used by users also include fair prices, typical prices, recent paid prices, upper limit prices, lower limit prices, expected future prices, and usually discounted prices . Therefore, when formulating a pricing strategy, the impact of reference prices on users should be considered, and corresponding pricing strategies should be formulated based on market conditions and user needs. Of course, it is best to invite users to do price tests, such as: The CBC joint analysis method can generally be applied in the stage of product development and commercialization. The product and similar products are set at three levels with four attributes: brand, price, service, and configuration, so that users can rate it. Based on this, you can understand the differences in people, product acceptance, and price elasticity; There are other things such as: PSM price sensitivity test, find the price band; price break point test, you can find the feasible price point of the product; BPTO model, test the price and price adjustment price elasticity, and can also evaluate the brand competitiveness and premium space based on this; At the same time, reference price can also be used as a pricing strategy to set prices , because the essence of reference price is based on user psychology. If the user first sees a higher price, his expectations for the value of the product will increase. Then when he sees a lower standard price (i.e. the price he hopes for the user to spend), his attractiveness will increase greatly . The pricing strategy that applies reference price thinking, I call the price reference method . A smart pricing range should contain two parts: reference price and core price range. In order to improve users' judgment of product value, the latter is the standard price that really needs users to pay . 4.2 Price implies qualityThis is the life experience of most users, and it is quite effective. It uses the product price as an anchor to judge product quality, performance, etc. When information about the true quality of the product is available, the price is less important in implying quality; and when this information is not available, the price is a signal of quality. This also leads to the image pricing strategy, which refers to the price image conveyed by the company or product in the market. Image pricing is not exactly the same as the actual price of the product. It is mainly conveyed to the user through brand, publicity and marketing methods. When formulating an image pricing strategy, it is necessary to consider the brand positioning and market positioning, and determine the price image to be conveyed by the company or product to achieve marketing goals. 4.3 Pricing CluesRefers to pricing information that users can obtain from the product . This information includes product packaging, labels, advertising, promotions, etc. Consumers often judge the price level and sense of value of the product based on these clues, and thus make purchasing decisions. Common pricing clues include: Packaging clues: packaging type, material, design, color, etc.; symbolic clues: font, color, pattern, text description, etc.; advertising clues: vision, language, sound, etc. in advertisements; promotion clues: promotions are usually accompanied by discounts and other activities. It should be noted that the price after discount may affect price judgment; there are also service clues, including personnel, interactions, etc. in the service. 4.4 Price endpointUsers will consider a product worth 9 yuan to be 9 yuan, and will avoid the appearance of 999 yuan. The price often ends with 0 or 5, which can facilitate users to process and remember. When the price tag contains the word "special offer", it can often stimulate demand, but when it exceeds a certain quantity, the special offer logo will make people disgusted... These are some pricing strategies based on user psychology. In addition to the price reference effect, users have anchoring effect, psychological accounts, peer effect, endowment effect... Reference effect As mentioned earlier, anchoring effect is essentially a kind of comparative psychology. Psychological accounts refer to people who will deposit money in different accounts in their hearts. The most rich accounts of users: accidental gains, emotional maintenance, change accounts; peer effect, that is, the herd effect, There are mainly some pricing strategies: Persona pricing strategy . It refers to a pricing strategy that takes the persona without integer when pricing a product. It is mostly used for lower-priced products, which gives users a sense of cheapness and is easy to expand sales. If the product is set at 9.9 yuan, it is more popular than the price of 10 yuan, and the former is cheaper; Integer pricing strategy . In contrast to the last-digit pricing strategy, it refers to intentionally setting the product price as an integer to show that the product has a certain quality, which makes it easy for users to get what you pay for and enhance the product image. It is mostly used for more expensive durable goods or gifts, just like a share of money, and a 1000 is more respectable than 999; To attract pricing strategies . Taking advantage of the mentality of some users to be honest, they will set the price of a certain product very high, or set the price of several products very low, so as to attract users to purchase and expand sales and increase overall sales revenue; Reputation pricing strategy . Use the user's admiration for famous brands or stores to set product prices. Generally, products that are not easy to identify quality, such as jewelry, cosmetics, and even choose schools; Habit pricing strategy . Refers to the skills of pricing according to the user's needs and price habits. Generally speaking, daily necessities that users often purchase and use will form habitual price standards in the user's mind. The prices of such products are usually not suitable for change. When it is necessary to change, it is better to adjust the content, packaging, and capacity of the product than to directly increase the price. Discount and discount pricing strategy . The essence is a price reduction strategy. Different price discounts are given according to users, quantity and conditions. The purpose is to encourage purchases. Including cash discounts, quantity discounts, transaction discounts, and seasonal discounts . 5. New product pricingNot only the initial price, but also the price adjustment New products are related to the prospects and development direction of the brand. Its pricing strategy is closely related to whether the new products can open up sales channels, occupy the market, and ultimately obtain target profits. The main pricing strategies of new products are as follows: 5.1 Skim pricing strategyA high-price strategy, also known as a life cycle pricing method. It refers to a high-price strategy that pursues the maximum profit in the short term. Usually, in the initial stage of the product life cycle, that is, the introduction period of the new product , the price of the product is set high to make high profits in the short term. The reason why this name is that this strategy is like skimming cream in fresh milk. It actually uses the innovation-seeking mentality of some users (a few innovators and early adopters) . First, it obtains a part of the high profits , and then adjusts the price as the product and brand influence accept differently at different time nodes. Therefore, it is also called the product life cycle pricing method. Specifically, you can quickly skim the strategy (high price and high intensity promotion) and slow skim the strategy (high price and low intensity promotion). The difference between the two is only different in terms of promotion intensity. Advantages are: high prices and high profits, which can quickly recover investment and raise funds, and leave a large room for price reduction in the future, and gain the initiative in price adjustment. Disadvantages are: high pricing can easily limit demand, not easily expand sales, and trigger market risks; it will also induce competition, resulting in damage to the brand image and great pressure on public relations. The applicable conditions are: the quality and image of the product must be consistent with the high price, otherwise it will be considered to be a deception of users ; and there are enough users who can accept high prices and are willing to buy it, it is best that their price sensitivity is low, that is, the demand lacks price elasticity, even if the demand changes at high prices are very small, or the negative impact brought by the change in demand is completely less than the benefits brought by the high price; the product must be distinctive, even if there are high prices but no competitors, competitors will not be easy to enter in the short term. Generally, it is used more in high-tech industries. High-tech products are usually cool and novel, so users are generally willing to pay high prices, especially for top brands, which often have the first-mover advantage in technology. Others need time to follow up and have a time window for skimming. In addition to technology, brands with brand strength, innovation and creative advantages, that is, brands with pricing power advantages , can also adopt this strategy. For example, when Hippodrome first entered the Chinese market, Renault's ballpoint pen... In order to make it easier to understand, we can simply understand that it is basically to use prices to anchor the product image and high-quality value, and quickly skim to increase sales. Higher prices can increase profits in the circulation link and promote rapid improvement of channel penetration and sales. 5.2 Penetration pricing strategyThe low-price strategy refers to setting the product price relatively low at the beginning of the new product launch to attract users, occupy the market, and obtain a higher market share to obtain relatively large profits. The advantages are: low prices can be accepted by the market as soon as possible, find a way of spending, and increase market share; and use large-scale sales to reduce costs and gain a long-term and stable market position; low-price strategies can also prevent competitors from entering and increase market competitiveness; the disadvantages are: meager profits, long investment recovery period, small room for price changes, difficult to cope with major changes in demand and short-term sudden competition, which also tests business capabilities very much. The applicable conditions are: the potential market is large, the demand elasticity is high, and it is sensitive to price. Low prices can stimulate demand to increase sales ; production costs and operating expenses can decline with the increase in sales and scale advantages; low prices will not cause actual and potential competition, although this is almost exclusive in China. 5.3 Moderate pricingMedium price strategy. It refers to setting the price between high and low prices at the beginning of the new product, and striving to make it acceptable to both buyers and sellers. A moderate pricing strategy is a strategy that avoids the disadvantages of high and low prices, allowing the brand to obtain appropriate average profits and take into account the interests of users. The disadvantage is: it is relatively conservative and not suitable for a market environment with complex and changing demand or fierce competition. 5.4 Combination PricingProduct portfolio is the product combination and product structure in the previous article . Combination pricing refers to the pricing method in which different products are combined and collectively priced to obtain maximum profit . There are specific pricing strategies: The product line is priced on the same product line, with different product grades, and pricing at high and low. For example, for Apple mobile phones, each size distinguishes high, medium and low configurations, carefully balances users' affordability to prices, the relationship between value brought by product differences, and the relationship between costs, and maximizes user purchasing power. It can also be used in clothing, books, cars and other products. Prices for alternative products . For main products + selective products , the price of alternative products can be set at a high price. For example, in cars, electronic window opening, navigation, and even large central control screens can be optional. For example, Apple phones, if the screen of the mobile phone is broken, the original factory is replaced, the price is almost as good as buying a new one. Pricing of auxiliary products . The use of main products needs to be accompanied by some other products, and this type of product is called auxiliary products. For example, mobile phone software, hardware is hardware, and various application software is required to be used, so the software can be charged. However, mobile phone manufacturers hand over the software to the developer, and the developer sets a price for the software, and mobile phone manufacturers charge a part of the fee. By-product pricing . Friends who operate manufacturing factories know that, for example, Sinopec often produces plastic packaging and other materials when refining oil, and these materials can be priced. The same is true for the processing and trading of meat... Product bundle pricing . Also known as bundled, package pricing, which combines products together for sales. The fast food industry packages mentioned above, such as annual cards for gyms, annual tickets for cinemas, cosmetic gift boxes, etc., are like this in almost all retail industries. The advantage of bundled pricing is that it can not only reduce the price sensitivity of a single product, but it is difficult for users to calculate the actual cost of the product; it can also cover many benefits, add a bit of competitiveness to your product package, and distinguish yourself from competitors' products; in the service industry, bundled pricing will make users feel worthwhile. Two-part pricing . Also known as segmented or segmented pricing, it consists of a one-time charge and then a charge based on usage. Two fees are required to be paid when purchasing a product, including a fixed (one-time) fee that does not change with use or consumption and a fee that changes with use or consumption. The two-part pricing is also a typical price discrimination . If you want to have a logical feasible market, the condition is that you must control the access to products or services. Just like if you don’t pay the tickets, you can’t even enter the scenic spot, and the user has no choice, that is, the seller has the right to pricing. In practice, of course, in addition to the rough monopoly model of scenic spot tickets, there are generally two methods: one is to choose to sell products to the user group with the highest willingness to pay, and set the threshold fee to the consumer surplus level of this group (effectively excluding other consumers from the market), and set the unit price to the marginal cost . One is to set the door fee to the consumer surplus level of the customer group with the lowest willingness to pay (so that all consumer groups are left in the market), and then set the price to the marginal cost, which will be more profitable . The difference between the two is like a five-star hotel buffet with a higher threshold, but no extra charge for sprinkling dishes; the latter is like a cheap buffet with a lower threshold, but some special dishes and wines need to be charged separately. Single price . Combine products with close value together, float gross profit margin, and keep the retail price consistent. You can imagine it as Zhang Liang Malatang and Miniso, one price, how much does one gram, or how much does one piece cost. Let users avoid thinking and comparing prices, and only need to have a sense of value within the psychological price. Gift pricing . It does not mean pricing gifts, but free gifts. The product consists of five major levels. The additional layer can actually be split separately as a product. If you want to let the user feel it but don’t want the user to say no to you, then it is best to be free for "gifts". Free can free users from the standpoint of having to choose. For example, online shopping, if postage and return and exchange costs, then I may consider not buying. When you say it is free, I have no reason to refuse. Product portfolio pricing is an application of basic business logic such as consumer psychology, second-stage charging, etc. 5.5 Price band strategyIt should be noted that although the combination pricing strategies mentioned above are complex and diverse, except for product line pricing, it can be said that they are just focusing on pricing for a certain product itself. In reality, brands have different product combinations, that is, the product structure in the previous article will generally be: profit products, frequent sales products, image products, and traffic diversion products. Therefore, in addition to matching with specific products, the overall pricing also needs to comply with the strategy of the product portfolio and match according to the tasks undertaken by different products in the product structure, so as to better complete the sales task. Image products are the image responsibility of the brand. The main purpose is to establish product potential and help establish brand image, rather than profit. Therefore, although high prices can be set and a single product can be profitable, it pursues contribution to overall profit. Frequently sold products are the cornerstone of performance, which means meeting the basic needs of most users, not just a niche group, in exchange for a higher relative market share. Therefore, you can take a lower price, small profits and quick turnover to win overall sales. The drainage product undertakes the task of blocking competitors. The goal is not to sales and market share, but to attract potential user groups. In addition, the drainage product must be related to the other three products. The price of the drainage product is usually lower and will not be higher than the other three products. Profitable products are responsible for profits. Although their sales volume may not be as good as that of popular products, their profit margins must be very considerable. They are usually upgraded versions of the products in terms of functions, quality, and services. A simple understanding is that there must be a boundary between the prices of different products within the brand product structure. If you understand it extremely, at least the price of products cannot be the same. This is called a price band , which refers to the range between the upper and lower limits of different product prices in the product structure . The width of the price band determines the level and number of users faced by the brand. Generally speaking, when thinking about the price band strategy, there is a benchmark point, also called a price point. Price points refer to the price or price that is most easily accepted by users for a certain type of product of the brand. It is the basis point that determines the product positioning in the user's mind, and the price band determines the range of user's purchasing space. Generally, the price band is designed around the price point. 5.6 Price reconstructionWe need to understand the fact that once the initial price is determined, it will be difficult for us to raise prices again. Price memory makes even the smallest price increase become one of the reasons why we "not buy". At this time, we need to cleverly reconstruct the price. Reconstruct the price is actually the continuation of pricing after the product is launched . Price increase . Successful price increase can bring huge profits. Generally speaking, there are two reasons for price increase: the main reason is the increase in cost. Considering inflation, the increase in price generally exceeds the increase in cost. Another reason is excessive demand, and when the supply cannot meet all users, the price will be raised or the supply will be controlled. But no matter how well the reason for the price increase is, it will damage sales. In this case, we should find ways to change the presentation of the product so that users cannot make direct price comparisons between new and old products, which is called reconstructing the price . Changing the presentation form of a product is a means. What is the logic behind doing this? As we said above, the essence of pricing is to set prices for user value and user perceived value. Perceived value depends on the user's perceived value. In other words, whether it is the initial price or price adjustment, it requires a perception method for value. If a product wants to increase its price, if the value perception has not changed, the price increase will inevitably be considered by users to maliciously increase its price . One common method is to change the packaging size , or add additional product characteristics, and another method is to offer short-term discounts while increasing the price . This is often the case in some food and beverage brands. It may be just that the bottle caps are opened differently, the packaging containers and portions are different, or the taste has been adjusted, and the combination of product pricing is set. However, in user perception, if the product is slightly different at five levels, it is considered to be different products, which provides the basis for price increase. If you want to raise prices, you need to provide sufficient reasons for price increases . Users should judge whether the price increase is reasonable from various price references and price decisions, such as product functions, weight, packaging, and similar products. Of course, if everyone is raising prices, users will not have any complaints about the concentration of energy of a certain brand. If you want to raise prices, it is best to go with them, rather than raise prices separately . Usually, a smart brand person will pay attention to this issue when developing products, making sure that he can always hide his hands and let himself have some different variables to distinguish products, which can leave room for himself to introduce new products and new prices to ensure that those old users are not allowed to leave you . Launching new products with short-term discounts is also a method, so that the price increase after the discount will not attract resistance. Carefully observe users' reactions to price changes - not just the reactions during the initial change, but the long-term reaction. Some users may be scared away by the price increase, but they will come back, but may also turn to other brands over time. The consequence of direct price increase is that sales may not decrease immediately, but it gradually decreases after a few months. We need to pay full attention to user reaction data, which includes obtaining user reaction data from different channels, because different channels are often different and the purchase behavior is also different, so such data is more meaningful. Should prices rise with inflation? In fact, this is not necessary, and it needs to be viewed differently . Price increases can usually cause a surge in profits, at least mathematically. We only need to increase the price of demand products with a very small amplitude to achieve a huge increase in profits. For products with average demand intensity and poor sales, prices can even be reduced or frozen . But make sure to spread the products that have frozen prices to the market, indicating that they are the end of inflation, which not only explains the facts to the market, but also implicitly explains the reasons for the rise of other products. Those price-sensitive users will instead buy products that have frozen prices, while those with elastic prices will choose to spend more money to buy products that have increased prices. Similarly, price reduction also requires a reason , otherwise the price reduction will be reduced only if customers think that your product is not good, and the timing is also very important. For example, brand day, member day, festival day, seasonality, lottery coupons, special groups with high price elasticity, etc., it is better to use discounts and discounts to directly reduce prices, so as not to damage the brand. Expected competitor response . Price increases and price reductions may cause reactions from competitors, and when adjusting prices, the expected competitor response is required. One way is to assume that competitors deal with price settings and changes in a standard way, and the other way is to assume that competitors see each price difference or change as a new challenge and respond in their own interests. It is necessary to fully study the current financial situation of competitors, recent sales, loyalty and pricing goals. If the competitor sets a market share goal, it may match the competitive price difference or change; if it has a profit-maximizing goal, its response may be to increase its advertising budget and improve product quality. Respond to competitor price changes . It is necessary to adapt to the timely conditions, taking into account the life cycle of the product, the importance of the company's product portfolio, the intention and ability of the competitor, the price and quality sensitivity of the market, the changes in costs with output, and other investment opportunities. In a highly homogeneous market, you should try every means to change the way the product is presented. If you cannot find a method, you may need to be forced to lower the price . In the heterogeneous product market, brands have more autonomy and need to consider the following issues: Why do competitors change prices? Is it to seize the market, make full use of excess production capacity, meet the conditions for cost change, or to cause price changes in the entire industry? Is the price change temporary or long-term? ; If the status quo is maintained, what changes will happen to market share and profits? What will other brands react? And how do you respond to the reaction? Generally speaking, promotion is a good way to increase product value and there is no need to reduce prices; if the product is a new product, it is a good way to try without worries, including a money-back guarantee; launching small or simplified products is a way to achieve lower price sales, competitors cannot respond, and it will not seriously affect profits or destroy the perceived value of the main product. 5.7 Pricing RightsIn short, pricing power means price control . As mentioned at the beginning of this article, enterprises that completely monopolize the market, monopolize the competitive market and oligopoly market have complete and greater price control, which is determined by the competitive situation and degree of competition. For most brands, they do not have economical control over price due to certain forces. So why can some brands increase prices, and some brands die as soon as they increase prices? For example, Moutai is almost constantly raising prices, but the more they increase prices, the more they demand is stronger. The reason for the price increase is to master the pricing power. For the domestic market, oversupply is a very big problem, and the homogeneity of products is very serious. In this case, prices can still be increased. How can we understand it? It can be understood from the so-called consumption upgrade. Consumer upgrades are essentially competing for psychological value rather than functional value , so being able to sell at a better price is essentially creating unique and differentiated user value. The product is the body and the brand is the soul. Value = functional value + psychological value . Functional consumption of product usage value is already oversupply. If you want to gain pricing advantages, you need to explore and innovate psychological value, which can help products and brands avoid homogeneous competition, and thus avoid price wars. View price war correctly . An effective growth strategy is not to seize other people's core users, but to serve their own users more effectively, upgrade high-quality users, acquire new users and recall lost users. What brands really should understand is to obtain the needs of target users, and what they should really do is to try their best to improve product value, focus on the target users of the company, provide them with the services they really need, and make the products worth the money. 6. Price systemNot only the product price, but also the price for the channel In a daily context, mentioning the price refers to the price of the commodity in circulation, which includes the ex-factory price, distribution price, market price or retail price, and the price composition is slightly different . Generally speaking, we do not set a single market retail price for the product, but a set of structural prices, that is, the price system, which refers to the brand's system setting different prices for product portfolios based on its own operating conditions and strategic planning based on different market conditions and different channel members. Similar to the concept of products and product systems, if price is regarded as "points", then the price system is "surface", price refers to singularity, price system refers to structure, price focuses on the balance of interests between buyers and sellers, and price system emphasizes the reverse matching of quantity specifications and prices . Products include product lines, product projects and therefore product combinations or product structures. There is a certain correlation between products. The price system corresponding to the product combination is also structural, and prices are only an integral part of this system. Price formulation and price system design are a complementary, coherent and consistent process. Price is the foundation and price system is development. Generally, market prices or distribution prices are formulated first, and then the price system is designed according to the channel level. If the market price is first, then the price system is designed in the direction of the channel supply chain; if the distribution price is first, the price system is designed in the direction of the channel supply chain. However, no matter what direction, the principle of designing a price system should be: the principle of matching channel type, the principle of resource downward transfer, and the principle of balance of interests. 6.1 Channel matching principleTaking fast-moving consumer goods as an example, channels are generally divided into traditional channels, supermarket channels, group buying channels and e-commerce channels. Different channels should have different price systems, but no matter how long or complex the channels are, the market price must be unified and consistent. Otherwise, the market price will be chaotic, resulting in user dissatisfaction and will also lead to scrambling. For traditional channels, they should be designed based on the industry channels, product characteristics and gross profit space. Products with relatively large gross profit space and require in-depth distribution can be designed longer channels, and the corresponding price system levels will be more. For supermarket channels, rebates and various expenses must be fully considered, and whether they are direct sales or distribution, with slight differences in the price system. Group buying is a special channel, and its price is generally slightly lower than the retail price because it saves part of the channel cost, which is equivalent to the quantity discount price at retail. E-commerce channels are the focus of the next article. 6.2 Resource downward principleIt means giving more gross profit to downstream members in the channel supply chain to improve their enthusiasm for product promotion, especially when designing traditional channel price systems. The closer the channel members are to users, the greater their enthusiasm for product and whether they are proactive or not will have a greater impact on product sales. Therefore, more resources are transferred downstream members to improve their enthusiasm to promote sales. Of course, in order to seize channel resources and establish channel barriers, gross profit can stay in the middle channel members. 6.3 Principle of balance of interestsThis is the most important principle in the design of the price system. If used well, it can stabilize the channel order and market order. If used improperly, it will cause chaos. Balance of interests includes both ecological balance between the same level, as well as consistent efforts and returns between different levels, and the sales scale is inversely matched with gross profit space, protecting the interests of different members in the same region to maintain balance. The method of designing a channel price system and the specific calculation methods are discussed in the reverse pricing method above, so I will not repeat it again. In short, the final formation of a product price system must go through two major steps: one is the formulation of prices, and the other is the design of prices. Pricing is the beginning, the foundation and the key. Whether the price is properly formulated determines whether the price system has market competitiveness. A good start is half of success. 7. Pricing procedureGeneral steps of pricing, consider various factors and make reasonable pricing 7.1 Position first and then pricingWhy emphasize positioning first? The key is that the market positioning of the product greatly affects how much price users are willing to pay for the product, and the price is also the most important positioning signal. Only by doing a good job of positioning can the price be set to be realistic and effective. Most markets have three to five price points or levels, which can also be called price ranges. Generally, excellent brands and products will appear in each price range. This product can bring users the greatest user satisfaction within this price range. For example, Marriott Hotel Group is good at developing brands or brand variants of different prices, designing their brands, and helping to convey to consumers the strategy of price-quality levels of their products or services. For example, in the automotive market, from luxury brands to ordinary brands, different positioning and different prices. An easy way is to place the product among more expensive competitors, which can increase the value of the product and make people feel willing to pay more emotionally to buy the product . If you choose the right competitor and then position the market accordingly, you can choose a pricing point that is completely different from the current price, which can change your profit rate. Brands have the opportunity to connect between their new product and another more expensive product, and in this way, influence people's price expectations for the product. In order to find the price reference in the eyes of users, it is necessary to analyze the various benefits that the product can bring to consumers. For each profit, it is necessary to clarify which deeper needs the benefits can meet the users, until the basic motivation is analyzed: happiness and pain. Use the income matrix to find opponents and find the right position : First, analyze the benefits or value consumers get from you, fill in the income matrix form, and fill in the various returns in the first column. Each direct income may have deeper motivations, fill in these deep motivations in the second column, and so on. Finally, the basic motivations will be analyzed: reduce pain, happiness, time and money; then write as many other products as possible, fill in the general price of other products, and then select a competitor from them to determine the product positioning. 7.2 Select a pricing targetBefore formulating a price strategy, you must first clarify your pricing goals. Different goals will have different impacts on the method and effect of the pricing strategy. Generally speaking, pricing goals can be divided into the following 4: 1. Maintain survival. When there is overproduction, fierce competition or user demand changes, maintain survival may be regarded as the main goal, so it is possible to set a low price and hope that the user has low price elasticity. However, survival goals are only short-term goals and cannot be long-term goals. In the long run, brands must learn how to increase value. 2. Maximizing short-term profits. Generally speaking, this is the goal of most brands. If the pricing goal is to maximize profits, then the price strategy usually revolves around how to maximize profits, which usually means taking a high price to get more profits, or increasing profit margins by reducing costs. But the premise of doing this is to know the relationship function of its demand and cost, but the fact is difficult. It should be noted that the reason why short-term profits are maximized is because long-term profits depend on market share, that is, market share. In order to achieve market share, short-term profits are usually given up, and share and profits must be given up. 3. Market share. Market share is market share, which is a comprehensive reflection of the brand's operating conditions and competitive conditions. A high market share is the prerequisite for long-term profits of the brand. If the pricing target is market share, the price strategy usually focuses on how to gain more users, which means it is possible to attract users by lowering prices or providing more additional services. This strategy is more suitable for brands that have just entered the market or want to expand their market share, but it should be noted that price reduction is easy to increase prices, and low-price strategies may have negative impacts on profits, brand image and product quality, thereby restricting the long-term development of the brand. In reality, many new brands are accustomed to low-price strategies. Although they can quickly occupy market share, their long-term losses have weak growth, and their brand image is solidified, and their brand strength is insufficient, which cannot support the brand's transformation to the high-end. 4、维护品牌和产品形象。一些成熟品牌或具有知名度的品牌，为了维护其品牌形象，会采取高价策略；而一些品牌以普通用户为目标市场，必然会采取低价策略 在制定价格策略时需要根据自身的定位和发展阶段，明确自己的定价目标，选择合适的定价策略，从而提高企业的市场竞争力和利润率。目标越清晰，制定价格策略就越容易，也越有效。 7.3 确定需求和价格弹性需求、需求曲线、价格弹性，可回看篇首”理解价格“部分。 不同的价格将导致不同的需求量，从而对公司的营销目标产生不同的影响。价格和需求的反比关系可以用需求曲线来表示，对一些知名的产品，需求曲线有时会向上倾斜。然而，如果价格过高，需求量可能降低。 为了估计需求，需要了解产品的需求价格弹性，需求的价格弹性反映了需求对价格变化的反应程度，即价格变动导致销量的变化。价格弹性越低，消费者越不敏感，涨价越有可能增加销售收入。 估计需求量的第一步是明确影响价格敏感度的因素，导致价格敏感度降低的因素有：产品与众不同、用户不知道有其他替代品、用户不能轻易比较、购买产品的支出只占用户收入很少的部分、费用的一部分由另一方承担、该产品需要与以前购买的产品结合使用、该产品具有更高的品质、可靠性、独特性。 估计需求曲线的方法：调查，找出不同价格下有多少消费者愿意购买、价格试验，为不同产品制定不同的价格，或在类似的区域内对同一产品制定不同的价格，以观察价格变化如何影响销售、统计分析，对历史价格、销量和其他因素的统计分析可以揭示他们之间的关系。 在测量价格和需求之间的关系时，必须对产品价格之外，其他影响需求的因素加以控制，如竞争对手的反应、其他营销组合变量，参考影响需求的因素。 最后，需求价格弹性的计算公式：需求价格弹性=需求量变动的%/价格变动的%。 7.4 估算成本虽然说价格必须根据向用户提供的价值、用户的感知价值，而非成本来制定，但成本决定了定价的下限，在正常情况下，不可能将自己的产品价格定得低于成本，必须确保价格至少能够覆盖成本，以确保盈利能力。 对绝大多数消费品来说，尤其是初创品牌，制定价格首先就得基于成本，所以毛利空间往往低于成熟品牌，但这是在品牌不够成熟时的选择。 成本类型主要有固定成本FC、变动成本VC、总成本TC、边际成本MC、平均总成本ATC，一般说只需算出平均总成本ATC就可以为定价做依据了。 但为了更好的定价，还需要明确在不同的产量水平之下，成本的比例是怎样变化的，尤其需要分析边际成本与平均总成本之间的关系。 了解固定成本和可变成本之间的差别，这一点对于认识如何将产品利润最大化非常关键。所有价格都必须与可变成本持平，不过也有些定价策略是专门为与固定成本持平而制定的。 需要注意的是，除了制造环节之外还有许多成本，不能只是关注生产成本，实际上包括营销成本在内的所有成本都可以得到改进。 如何计算出最低售价呢？对大部分品牌而言，几乎可以只需要计算：单位直接成本（直接人工成本、材料成本）+固定成本（创业资金、人员工资、营销成本、房屋租金、其他日常开支）。 7.5 分析竞争者的成本、价格和产品竞争。制定价格时需要考虑的另一个重要因素，品牌需要了解竞争对手的成本、价格水平和可能的价格反应，以确定自己的价格是否有利于在市场竞争中胜出。 若价格过高，可能会失去市场份额，若价格过低，可能会影响盈利能力，因此，需要在竞争者的价格水平基础上做出自己的定价策略，在不同市场，竞争状况不同，相应的定价策略也不同。 如果品牌所提供的产品具有最相似竞争者所没有的特征，也就是人无我有（包括对方有但对方不说的），那么就应该评价该特征对消费者的价值，并将其加到竞争者的价格上。如果竞争者的产品具有自己所不具备的特征，就应该从它自身价格中减去这一价值，或者想办法补足。这时，企业可以决定制定比对手更高、相同还是更低的价格。 如美妆品牌花西子在进入化妆品市场时，选择将重点放在脸部彩粉产品上。当时国外品牌基本主打300元以上价格带的高端市场，而国内品牌的彩粉产品主要聚焦在150元以下的低端市场。150元至300元的价格区间内并没有强大的品牌竞争者。因此，花西子定位了这一空白价格带，成功突破了市场。 7.6 选择定价方法本文在定价方法已经给出了“应该怎样选择定价方法”，价格制定时只需要重点考虑三个问题：成本是价格下限，竞争对手的价格是参考点，用户的感受价值是价格上限。 这里再深入一点，可能有的人还是不知道如何根据价值进行定价，关键是说不明白自己的产品到底有什么价值，一个窍门是产品策划必须要考虑的“USP”和“FAB” ，这部分工作已经将产品价值明晰确定了，而且这是要告诉用户的，将影响用户感知。 7.7 选定最终价格为某产品拟定价格后，在宣布执行这个价格之前还应该考虑一些其他因素：公司内部、渠道内部、市场和需求和社会因素。
在选定最终价格时，还需要对价格体系进行设计，本文“价格体系”部分已经有详细介绍。 Author: Wang Bubai Source: WeChat public account "Bubai Power Account" |
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