90% of pricing falls into cost misunderstanding

Introduction: The author starts with marketing theory and emphasizes the importance of price in product marketing. Negotiating prices is not simple, but the subsequent profits it brings are immeasurable. This article explains the significance of prices and how to negotiate prices. I hope it will be helpful to all readers!

Let’s look at a math problem first: What does it mean for a company if it can increase its product prices by an average of 2%, keeping sales volume and costs unchanged?

• Amazon's corporate profits will grow 276.2%
• Honda Motor could boost profits by 65.2%
• HP's profit can be increased by 37.9%

In the 4Ps of marketing, products can be discussed in terms of packaging and visual effects; channels can be discussed in terms of bonuses and mass penetration; promotion can be discussed in terms of content and KOLs. However, when it comes to price, there seems to be nothing to talk about. Often, the more obvious something is, the less likely it is to be discovered.

Genuine goods, good quality and low price, good products are not cheap, cost-effectiveness, behind these familiar words are all talking about prices. The top ability of an entrepreneur is the sense of pricing. First-class companies can set prices, second-class companies do promotions, and third-class companies are Pinduoduo.

01 A misunderstanding: cost pricing

If you produce a kettle, would you describe it as an electric kettle or an electric tea kettle? Of course, the function of the product is the same, which is to boil water.

However, the markets and channels for electric kettles and electric tea kettles are completely different, and most importantly, consumers’ value perception points are also different. The most important thing is that consumers’ price acceptance for electric kettles and electric tea kettles is different.

For electric kettles, profits can differ by 10 times due to differences in categories, scenarios, and value perceptions. Product prices are derived from the value perception brought by categories and scenarios, and brands, channels, and promotions are the channels for conveying cognition.

• The logic of pricing is not about cost
• Depends on how the enterprise defines and delivers the product value

02 Price is potential energy

You can naturally use the price that suits the position you occupy. Conversely, if you are not in that position, you cannot set that price. It is not that you cannot set it, but that consumers do not accept or recognize it because you do not have that potential energy. Price is potential energy - a good warrior seeks it from potential, not from others, so he can blame others and take advantage of potential.

• The iPhone can be priced high as a matter of course
• Huawei's Mate series has just secured its high price after several generations
• Xiaomi is still working hard to move towards higher prices

The price of the first generation Tesla must be set high. The $100,000 Roadster represents not only Tesla but also the future of electric vehicles. If the first generation Tesla is priced at the same price as ordinary fuel vehicles, Tesla will not be Tesla.

After the accumulation of high-priced potential energy of Model S and Model X, the potential energy released later was different. The advent of Model 3 penetrated into the mid-range electric vehicle field with a price of $40,000. The strong brand, popular high-tech and attractive price quickly attracted a large number of buyers from the market share of traditional car brands of the same level.

03 Scene and Anchor

In fact, compared with the cost, consumers are more concerned about the benefits of purchasing products, including use value, functional value, image value, and social value. The logic of pricing has never been cost, but creating advantage recognition and price anchoring.

You may think that no one will buy the aluminum-to-steel Mercedes, but the reality is the opposite. It has no impact and is selling well. This is because consumers are concerned about image value and social value. A man drives a Mercedes, so no matter whether it is an E or S, it is a Mercedes first.

1. Physical scene and mental scene

Physical scene: A mug costs 5 yuan each and 10 yuan for 3 mugs at a street stall. In Starbucks, the price can be increased by 5-10 times with the beautiful environment, aroma of coffee and scene-based display. In fact, any mug sold in a coffee shop can be sold at 5-8 times the price. The premium space is not the product, but the scene and surrounding price anchoring.

When we talk about new offline species, it is essentially the reconstruction of the physical scene of sales, such as Hema Fresh in the past few years and the popular pubs nowadays. Food still needs to be eaten and wine still needs to be drunk, but new consumers need new physical scenes to stimulate their desire to eat and drink.

Mental scenario: Milk is a mass product. If it is sold to the masses, it can only be priced at the mass market. The key to selling a glass of milk at 3-5 times the price is not to add functions, but to discover and recreate mental scenarios and redefine target consumers. For example, breakfast milk sold to children, night milk for white-collar workers, and calcium supplement milk for pregnant women.

Isn’t that what Telunsu did? Isn’t that what Jane Eyre did? They doubled the price of yogurt and sold it to fashionable moms. Now they have prepared a fatherly love formula and are selling it again.

2. Price anchoring: stand on the expensive side and use the past to anchor the present

Whatever product you want to be, you have to stand beside it. When inviting people to dinner, the white wine is Maotai, what kind of red wine is suitable, which is not expensive but also face-saving? Penfolds 407 is tied to Maotai Feitian, and the price suddenly seems reasonable.

In the absence of more information, past prices (or other comparable prices) may be an important determinant of current prices, anchoring current prices.

Down jackets that originally started at 499 yuan can now be purchased for only 199 yuan. With this as a reference, customers will accept the price of 199 yuan without hesitation. Here 499 is the anchor point.

The screen protector costs several hundred yuan and the membership service costs several thousand yuan. If you just bought an iPhone for 8699, it may feel acceptable.

If you add one more sentence: If you don't buy Apple Care service, the cost of repairing the screen is 2600+, and the cost of replacing the whole machine is 4600+, you will be captured instantly. 8699 is the price anchor point, and the intimidation of not buying is the aversion to loss.

In addition, we need to look at pricing from a better industry perspective. Pricing is not just a matter for one company, it even determines the industry ecosystem. Ren Zhengfei said in an interview that Apple is great, and its high pricing leaves opportunities for other brands behind. Otherwise, once Apple lowers its price, other brands will not be able to play. Understanding pricing from the perspective of the industry will be a big deal.

Having said so much, I have summarized 15 pricing techniques that you can use right away. You can understand them at a glance and use them immediately.

3. 15 cognitive pricing methods

1. The numbers on the left affect price perception
2. Smaller fonts are cheaper
3. Remove the thousands separator to make the price look lower
4. Place copy around the price number, choose less expressive/smaller descriptions
5. Break down pricing into its components
6. Consumers are willing to pay more when prices are more accurate
7. Put the low-priced ones on the left and the high-priced ones on the right
8. Show consumers two divisors of the price
9. Emotional zeroing; rational adding
10. The order in which the products/prices appear determines the criteria for the subjects to make purchasing decisions
11. Anchor Price/Reference Price
12. Place the price to the right of the larger quantity
13. Small words next to large words
14. Follow the "100 Principle"
15. Discounts of more than 30% must have a reason for the discount

Author: Houshan Keju; Source public account: New Consumer Brand Research Society (ID: PPD6977)