One of the cautions to managers addressed in any introductory marketing course is the importance of pricing. While price has not historically been a defendable or sustainable competitive advantage, why is it that one of our first factors in product selection (as both consumers and business customers) is price?
Thus the paradox of pricing. Adam Smith, credited with the “Invisible Hand,” explained that the equilibrium of supply and demand is lifted by an invisible force that is marked by the intersection of price and supply.
Outside the ivory tower, however, practice is very different. While we learned historically that consumers behave “rationally,” that is not always the case. Look at the toilet paper aisle in March 2020 for a case in point.
Pricing’s Prominent Place in the Marketing Mix
Edmund Jerome McCarthy has been credited with the 4Ps. Originally a professor of mathematics at Notre Dame, he shifted his focus in 1959 to specifically work on mathematical models for marketing, which explains his quantitative approach to a historically qualitative discipline.
Is one “P” more important than the other? Berend van Niekerk of Omnia Retail argues that price is indeed the most important factor because it is “a bigger differentiator” and prices are now symmetrical and easily comparable. According to van Niekerk:
- Product is less of a differentiator to consumers as sellers broaden their assortment and more offer the same products
- Place is less of a differentiator as consumers and businesses order from their computer or mobile device
- Promotion, or online marketing itself, is more important as the number of marketing channels has increased
- Price is a bigger differentiator as prices are transparent and easily comparable
Lower Pricing Is Positively Impacted When Choices Appear Limited
When shoppers are faced with a choice at the supermarket with two items – one priced at $2.99 and one priced at $4.00, the psychology tells us that shoppers will gravitate toward the $2.99 because in their heads it calculates $2.00 versus $4.00.
Tartiana Sokolova, an assistant professor at Tilburg University in the Netherlands concluded that “just below” pricing is more powerful when consumers evaluate multiple prices side-by-side and less powerful when consumers compare the prices in their heads with what they think the product should cost them based on their own opinions.
How Pricing Applies in a B2B Foodservice World
Most foodservice firms are selling to distributors, wholesalers and operators, not consumers. In order for pricing to apply to, say, a firm selling cases of hard-pack ice cream, a customer must consider price along with many other aspects of the purchase – quality, sales response time, guarantees, replacement for shipping errors, merchandising, training and most importantly – demand from end-consumers.
There is also the argument that pricing and the 4Ps are largely irrelevant to business-to-business and professional services. The Harvard Business Review in 2013 published an article suggesting companies rethink the concepts (see https://hbr.org/2013/01/rethinking-the-4-ps).
Whatever the case with pricing’s place in the concept or the marketing mix in 2021, it is generally agreed that price is a critical component to customer evaluation and selection.
Business executives must always do their homework first – understand a target customer’s purchasing patterns along with a customer’s alternative consideration set before using a pricing tactic. Otherwise, like the $5 Footlong, buyers become accustomed to a discount or see diminished value in an offering.
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