pricing strategy - Brand Marketing Psychology

Understanding your consumer to build a strong marketing strategy is fundamentally about:

Understanding the psychology behind how your consumers make use of their time and money
Understanding the psychology of where your consumers focus their attention

The amount of aspects which influence someone’s choices are endless. The more we understand them, the more we as marketers are capable of influencing their purchasing decisions. It doesn’t help that consumers are horrible at explaining their choices. So asking them is rather pointless. They often find it rather difficult to explain why they choose one option over another.

Traditionally, marketers use discrete choice modelling, conjoint analysis, or concept test to deduce decision drivers. However, if we can understand key psychology principles on how the human mind works, we can employ creative strategies to build brand equity by influencing the consumer’s decision in favor of your brand.

If we know anything about consumer psychology, it’s that consumers generally make irrational decisions. The human mind is fascinatingly irrational. Humans rarely make choices in unconditional terms. Understanding this idea can hold great benefits for marketers in employing strategies in each of the four P’s of marketing – especially when it comes to PRICING strategy. Why particularly pricing? Because as consumers, we don’t have an internal value measure that tells us how much things are worth. Instead we focus on the comparative advantage of one thing over another and assess value accordingly.

We see this pricing strategy in effect on a regular basis when we constantly observe the fuel price. There was a point in Canada when $1.20/L was considered expensive. But for the past two weeks, when the price jumped to $1.30/L, the amount of drivers completely filling up their tanks decreased, and the amount of people draining their gas meter to its limit increased. Two weeks later, after the PERCEIVED over-priced gas ‘fell’ from $1.30 to $1.25/L, gas stations were swarming with cars. I was one of them. I filled up a full tank of gas and I actually felt good about it! I felt like I was actually saving money. Why does this happen? We don’t know how much the actual price of gas ‘should’ be, but we know that RELATIVE to what it was before, it’s cheaper now, therefore I’m getting more value and I’m saving money.

The same thing happens when people are out looking to buy a car and end up spending more than they intend to, simply because the more expensive car has a greater overall discount. You can save 25% by buying the more expensive car, or save 10% when you buy the cheaper one. The one people generally choose costs more, but consumer’s are prone to not look the other way when they see more value for their money. It’s very true that as consumers, we don’t always make choices that are in our best interest.

Consumers are increasingly developing a need to attain the feeling that they are intelligent shoppers, that they know how to get the most for their money, that they know value when they see it. This is the reason why over the past few years, companies such as Groupon, Livingsocial, and TeamBuy are becoming more popular. Getting a deal makes the consumer feel good. Marketers are using these services by offering deep discounts, primarily to encourage people to go ahead and try their spas, restaurants, etc. They’re hoping for repeat customers. There is no doubt that this strategy is effective, especially in a time of economic downturn where price-sensitivity is rising and people are craving new experiences for a reasonable price. However, brand equity can be seriously hurt in the long-term, if companies continually rely on employing price-promotion strategies and continuous discounts.

There are much better strategies to enhance the perceived value of your brand, without having to offer deep discounts. My favourite is by using a COMPARATIVE strategy.

Take a look at the following diagram:

The middle circle in this picture doesn’t appear to be staying the same size; when the middle circle is placed in between smaller circles, it grows bigger. When it’s placed in between bigger circles, it seems smaller. In both positions, the middle circle is the same size. Our mind creates the illusion of its altering size because we look at it in comparison to what’s around it.

Humans are always comparing. We compare our friends, jobs, relationships, and especially our POSSESSIONS (our cars, homes, wines, cell phones, etc.) Most of these possessions are branded. And for most brand-conscious consumers, the brand they choose is a reflection of who they are; their status, their personality, etc. Thus after making comparisons, consumers always want to feel good about their possessions by knowing that they have the thing with the higher value because that reflects high value in their sense of self. So how can we as marketers, leverage the comparative nature of humans to reinforce higher value in the mind of our consumer?

An easy way is by creating the expectancy of a higher future price. Like in the example with the gas prices. I figured that gas prices will go back up in a few days, therefore most people and I were more than happy to fill up gas as soon as possible.

Another way is by creating STRATEGIC ALTERNATIVES. These alternatives are placed beside the intended sell to serve as a subtle influence. There are two essential methods to employing the strategic alternatives strategy. The first is by presenting an extremely unattractive alternative and the second is by presenting an incredibly high priced alternative.

Remember when Apple came out with the iPod Touch? This was their pricing strategy:

16GB for $229, 32GB for $299, and 64GB for $399
The extra features are only available in the upgraded options (32GB & 64GB)

Which option would you choose? The majority of consumers would conclude that they attain the best value from the 32GB option. Some would buy the 16GB. Few would buy the 64GB.

The extra features on the upgrades makes the 16GB incredibly unattractive, especially when the next upgrade only has a $70 difference with double the storage capacity! The 64GB has no added features, but doubles the storage for $100 difference.

So the 16GB is unattractive and the 64GB is not ‘worth’ the value. This is the STRATEGIC ALTERNATIVE strategy in action. Which Ipod Touch do you think Apple was aiming to be its main sell?

Knowing these strategies can not only make you more strategic as a marketer, but more aware as a consumer.

Marketers should realize that coupons and discounts aren’t always the answer to establishing a certain value to influence consumer purchasing decisions. A lot of innovation and creativity goes into promotional, placement, and product strategy. Innovation in pricing strategy isn’t something that should be overlooked.Your brand can appeal to the mind of your consumer by understanding how their mind leads to the purchase decisions they make.

Understand your consumer’s psychology to build powerful, demand-shifting, and creative brand marketing strategies – that’s what Brand Marketing Psychology is all about.

Is building a better quality product the same as building a better brand?

One would think so – and it’s not uncommon for new marketers to think so. But when creating a strong brand marketing strategy, this is not the case. There are almost no correlations between best quality and most successful brands. We’ve seen it many times – where the most preferred brand, is not the leading one.

Why is the Pepsi Taste Challenge so successful? People enjoy Pepsi a lot more, yet Coca Cola is the leading brand. The reason is because the idea of quality is something that resides in the mind of the consumer. The idea of quality is something that is implanted in the mind of the consumer.

One of the surest ways to do this is through further constricting the focus of your brand. This is something I will cover in depth in a future article. For now, what you need to know is that by becoming an expert and by becoming focused on one thing as opposed to many, your brand becomes perceived as being of higher quality.

If you’re creating a soccer team, would you choose the athlete who plays every sport or would you choose the athlete who plays only soccer? Obviously the soccer player. That’s how consumers view brands.

A brand that claims to do everything is less trustworthy, than the brand who claims they are the best at one thing.

Be the best at one thing.

Be a big fish in a small pond, not a small fish in a big one.

Another way to build the perception of the quality of your brand in your consumer’s mind is through high-pricing – something you may have already realized to some degree.

Below are examples of a few brands that the average individual would associate with being ‘high-quality’. These are also brands which profit immensely from their high price:

Mercedes
Montblanc
Jack Daniel’s
Rolex
Rolls-Royce

What often happens is that brand owners either feel that their brand should be a high-quality brand but are afraid to make the price equivalent to what they think their brand is worth… OR some brand owners feel that their brand is a high quality brand but in reality it isn’t, yet they still charge the higher price.

Before even considering charging a higher price, you need to be confident in the high quality of your brand. Quality comes first.

If your brand has products and services with a high price but has a low or average quality perception of a brand, that will discourage consumers from sticking around for very long. That violates the idea of brand consistency. But if your quality is on higher level, don’t be afraid to charge a higher price for your brand. Having a higher price on your brand, can in fact be a benefit to the consumer. By buying a product of brand that is associated with high quality, consumers feel a certain level of satisfaction from the purchase.

The individual who purchases a Movado, doesn’t do so to tell time better, but to make others aware that he or she can afford it. There’s a quote I heard somewhere ; it goes something like… “if your watch costs more than $50,000, it’s no longer a time-telling device, it’s jewelry.” Also, don’t rely only on quality to develop a successful brand. At the end of the day, it is the brand with the better strategy that wins.

The other most important thing to think about when employing high quality strategy, is how you will justify the increase in price of your product or service? What can you emphasize? You need to pick one thing that you can be the best at and be a leader in – this comes back to the idea of constricting the focus of your brand.

Take a look at Whole Foods, who earns most of its profits in prepared foods, where the price premium is very high, with operating margins of approximately 7%. They justified their premium price by emphasizing luxury with organic food, sophisticated in store presentation, and knowledgeable staff. That was enough to convince customers to pay a higher price for prepared food.

Leverage the psychology of how consumers think to build your brand – that’s what Brand Marketing Psychology is all about.