Price puzzle at Herald

IMBA students at Herald College conduct weekly events to get hands-on learning experience that develops a diverse range of skills applicable in various professional contexts. “The Price Puzzle: Solving the Pricing Mystery” is the title for one such event.

The event is divided into three segments:

• Drama: “The decoy effect: The illusion of choices”
• Panel discussion: “The Price Puzzle: Solving the pricing mystery”
• Bid and blitz: “Marketing Mastermind Auction”

With these segments the event tries to dive into the topics of pricing strategies in marketing for a business. The learning of such topics is described below.

Getting started with pricing strategies

Price, which is one of the 4 ‘Ps’ of marketing, refers to the cost of product or service that business offers. Pricing strategy is the process to determine this price. It involves understanding consumer behavior, market dynamics, and strategic decision-making. A good pricing strategy can enable a business in one or more ways such as:

Enter new markets

• Maximize Profits
• Get competitive advantage
• Set customer’s perception of product/service and brand
• Set market position
• Boost revenue

Various pricing strategies

There are many pricing strategies implemented in real markets by businesses to cater different market conditions, customer behaviors, product or service attributes, and business goals. This event tries to highlight following three strategies:

1. Penetration pricing: Set the price low for a new product or service to capture a large share of the market and increase price over time. This strategy aims to target customers who look for value for their money and are willing to try out new products or services. The examples of implementation of this strategy are: 

• Jio, an Indian telecom company, used this strategy when it first launched by offering low prices for its data and voice plans in order to attract customers and gain market share.
• Xiaomi, a Chinese smartphone company, uses this strategy to get market share in the new markets such as Nepal. The company introduced its smartphones with low prices and high-end features, which helped it to attract customers and gain market share in the highly competitive Nepali smartphone market.

2. Psychological pricing: Humans’ decisions are always driven by psychological factors such as perception, emotions, and cognitive biases. Businesses use various tactics to leverage consumer psychology to influence purchasing decisions, often by manipulating perceptions of value, affordability, and quality. Examples of such tactics are:

• Odd/even pricing: Price the products just below round number i.e Rs 99 (odd price) instead of Rs 100 (even price) to create a perception of significantly lower price. We have seen this implementation on e-commerces such as Daraz’s products very often.
• Decoys: Introduce a decoy which is a slightly less attractive option to make the target option seem more appealing in comparison. Cinemas offering small popcorn for Rs 50 and large for Rs 80 might not attract many. That’s why they introduce a medium for Rs 75, and for us the large seems like a better deal.
• Price bundling: We often see offers where multiple products or services are offered together as a package at a lower price than if they were purchased separately. Combo deals in fast food meals, Internet packages offering TV packages, schemes such as “Bike kinda TV upahaar” in Dashain, Tihaar festive seasons are examples of price bundling.

3. Competitive pricing: Within this strategy businesses price products based on the price of competitive products or services, rather than cost or target profit; usually cheaper than competitors. In price sensitive markets such as Nepal this strategy is often used by small to big businesses. The examples of local businesses in Nepal using this strategy are:

• At the lakeside market in Pokhara, we can see salesmen of lodges pitching the lower price for their rooms and services than their competitors with commuting customers.
• In the local vegetable market, we often ask prices of those products from multiple vendors in hope the vendor owners lower the price than its customers and they do.
• Internet services, TV services, Telecom services, often bringing new lower priced subscription deals to cater the price of their competitors for the new customers.

Pricing and market positioning

Pricing and marketing positioning are intricately linked in a company's overall strategy. The price positioning strategies set a perception among customers regarding its brand and its product or service. It directly influences how consumers perceive the value and quality of a brand. Some effectively used price positioning strategies are:

• Premium pricing: Brands use premium pricing strategy to set a perception of luxury, exclusivity and quality of their product or services and brand as a whole. This strategy works well when a brand has unique offerings and high brand equity. Apple is the prominent example of using this strategy effectively. The brand’s equity, innovative features, and the prestige associated with owning an Apple product all contribute to Apple’s successful implementation of the premium pricing strategy.
• Value-based pricing: In this strategy, businesses set the price points of their product or service based on their perceived value rather than its historical price. Chinese phone brands segment their products in different categories such as budget. Example of this is Goldstar and Caliber brand, setting a perception of best value product for customer spending against the international brands such as Nike, Adidas, Erke etc.

Adapting prices to market changes

Market has several dynamic factors such as demand & supply fluctuations, consumer behavior, seasonality and trends, competitor pricing, inflations, government policies etc which influence business to tailor the price of product or services they offer. Examples of businesses adapting price according to market changes are:

• Businesses offer discounts on festive seasons which helps them increase revenue and cash flow, and clear stocks.
• We see petroleum and gas prices fluctuate in Nepal because of global demand and supply of such products.