The price is not hot
When sales stagnate, it’s rarely the product’s price that’s to blame. The problem is a lack of focus on one or a few target groups and the way companies communicate, says marketing professor Florian Siems.
Customers judge harshly - and unfairly. And they also make mistakes. For example, Swisscom's services are perceived as more expensive on average than those of the competition, even though they are not. "Monopolists or companies that once held a monopoly are often considered by consumers to be more expensive than their competitors," explains Florian Siems, Junior Professor of Business-to-Business Marketing at the Rheinisch-Westfälische Hochschule Aachen. "Swisscom can do little to change this negative price image, even if the company lowers its prices and thus sends out a different stimulus." This is because current stimuli are always linked to existing knowledge, in this case to the long-term perception that the company has high prices.
And now? Siems also has the solution at hand: "Swisscom must consciously deal with this price image in its communication. Instead of advertising price reductions, the company should talk about its plus in service. In other words, about what really sets it apart from the competition. Or it must directly address and refute its negative price image." This is exactly what Swisscom did in 2000. With the slogan "Lower than you think", it played directly on consumers' price misconceptions and thus took the wind out of their sails. Prices were not lowered as part of the advertising campaign, but the verdict on Swisscom's prices was more positive.
"If you communicate properly with your customer, price is not an issue at all," says Siems. "But it does matter how you talk. If a flower seller asks me: 'How much can the bouquet cost?', I answer '20 francs'. If she asks me 'Who should the flowers be for?', I say 'For a dear friend' and I don't care whether the bouquet costs 20 or 45 francs." Asking a customer what they would pay for a product never works, says Siems, because this question is purely hypothetical. "The only way to find out what customers are willing to pay is to try it out - on eBay or through a time-limited test sale. This works just as well for hairdressers as it does for luxury cars."
Gut feelings
Purchasing decisions are anything but rational. This is also confirmed by studies on price estimation and reality, which Florian Siems presented in his lecture on price management for the IAA Swiss Chapter. One of the studies shows, for example, that customers suddenly perceive a monopolist that is considered expensive as cheaper if it outsources its IT. A result that would probably even surprise the study participants themselves. After all, such assessments are not made consciously. But what do consumers look for when they buy? For example, they have an idea of how much certain products should cost. When making purchasing decisions, they are guided by these anchor prices, which are stored in their long-term memory.
But even this reference is anything but valid - and can be perfectly influenced by advertising measures. An example: A customer wants to buy a camera. The first one he sees costs 300 francs, the second 1,000 francs, the third 500 francs. His conclusion: the first camera is too cheap, the second too expensive, the third a good compromise between price and performance. What if the buyer had first looked at the camera for 500 francs, then the one for 1,000 francs and then one for 1,200? And a sign above the camera for 1,000 francs would have announced: "One-off top offer. This week only!"
If consumers have little or no idea about the product they want to buy, they are most likely to base their decision on the price. "They see a high price as an indicator of good quality, even if it is no guarantee of quality," says Siems. "For example, if you don't know anything about wine but want to treat your guests to a good drop, you're more likely to buy a bottle for 30 francs than one for 3 francs."
Price judgments are often emotional. Siems, following marketing professor Hermann Diller from Nuremberg, speaks of price joy, price anger and price envy. Strong feelings - so extreme caution is required when pricing. Because negative deviations from the expected price of a product have a much stronger effect than positive ones such as price reductions, Siems recommends: "Avoid price anger, which is more important than generating short-term price joy." And a company can explain value-based pricing geared towards customer benefit to its customers through advertising: Why does the product cost five francs and not two? It probably gives them wings.
"Of course, advertising is a way of communicating prices," emphasizes Siems. "But companies shouldn't place too much emphasis on the price message. Then they turn their customers into bargain hunters. It's better to explain your pricing with advertising - then you can also push through higher prices."
Worthy prices
Because pricing, brand policy and communication are so closely linked, Siems wants to interlink them more closely again. "Pricing problems don't actually exist," says the marketing expert. "It's communication problems that cause companies difficulties. With the right communication, consumers' price judgment can be controlled." Whether consumers perceive a product as worthy of the price, for example, depends to a large extent on the messages the company uses to advertise its goods. If the advertising presents the potential buyer with a clear added value of a product or service, they will normally be happy to pay a little more for it. It is worth the price. Customers who make such value-for-money decisions are very likely to remain loyal to the provider of the purchased goods. Other consumers are fully committed to value for money. They think cheap is cool and jump at advertising that offers cheap products. Denner or the German discounter Lidl, which is pushing into Switzerland, are targeting this clientele. "You have to be careful with customer loyalty based on price," says Siems. "Because these customers move on to the next provider as soon as they find something cheaper. Such cold loyalty is limited in time, as the competition can quickly copy the price. This is not so easy with other competitive advantages."
Got on the dog
Siems divides consumers into cats, dogs and rats, an approach that has already appeared several times in current scientific discourse: cats feel tied to one place, they always go to the same store, even if the seller changes. Dogs are loyal to their masters, they always stay with one vendor, even if the product or location changes. Rats look for food. No matter what kind. They always go for the cheapest product, no matter from whom. "Each of us has all three animals in us, depending on the product," says Siems. "It depends on the level of involvement. If it's low, you're more of a rat, if it's high, you become a cat or a dog. A provider can try to stimulate one or the other price judgment through its communication. Either 'dear customers, forget the quality aspect, only the price counts' or 'dear customers, buy quality and service. We may be more expensive, but we're better'." Which option a company chooses depends on which of the two segments it wants to focus on.
This also speaks in favor of segmenting target groups more strongly again and not trying to appeal to all consumers. This is not about offending potential customers, but about focusing communication on core customer groups. "Not every customer is king," Siems points out. "It's wrong to always chase after customers who can't be convinced by a product. You have to be able to do without certain customer groups and have the courage not to approach them. It is better for companies to refocus on their core customers and pamper them - especially during the crisis. Otherwise they feed the rats and ruin their brand." Companies that focus on one or a few customer segments also find it easier to recognize their customers' needs and tailor both their offer and their prices precisely to these buyers. Then it is also very easy to find the right advertising message.
Anne-Friederike Wilhelm
And now? Siems also has the solution at hand: "Swisscom must consciously deal with this price image in its communication. Instead of advertising price reductions, the company should talk about its plus in service. In other words, about what really sets it apart from the competition. Or it must directly address and refute its negative price image." This is exactly what Swisscom did in 2000. With the slogan "Lower than you think", it played directly on consumers' price misconceptions and thus took the wind out of their sails. Prices were not lowered as part of the advertising campaign, but the verdict on Swisscom's prices was more positive.
"If you communicate properly with your customer, price is not an issue at all," says Siems. "But it does matter how you talk. If a flower seller asks me: 'How much can the bouquet cost?', I answer '20 francs'. If she asks me 'Who should the flowers be for?', I say 'For a dear friend' and I don't care whether the bouquet costs 20 or 45 francs." Asking a customer what they would pay for a product never works, says Siems, because this question is purely hypothetical. "The only way to find out what customers are willing to pay is to try it out - on eBay or through a time-limited test sale. This works just as well for hairdressers as it does for luxury cars."
Gut feelings
Purchasing decisions are anything but rational. This is also confirmed by studies on price estimation and reality, which Florian Siems presented in his lecture on price management for the IAA Swiss Chapter. One of the studies shows, for example, that customers suddenly perceive a monopolist that is considered expensive as cheaper if it outsources its IT. A result that would probably even surprise the study participants themselves. After all, such assessments are not made consciously. But what do consumers look for when they buy? For example, they have an idea of how much certain products should cost. When making purchasing decisions, they are guided by these anchor prices, which are stored in their long-term memory.
But even this reference is anything but valid - and can be perfectly influenced by advertising measures. An example: A customer wants to buy a camera. The first one he sees costs 300 francs, the second 1,000 francs, the third 500 francs. His conclusion: the first camera is too cheap, the second too expensive, the third a good compromise between price and performance. What if the buyer had first looked at the camera for 500 francs, then the one for 1,000 francs and then one for 1,200? And a sign above the camera for 1,000 francs would have announced: "One-off top offer. This week only!"
If consumers have little or no idea about the product they want to buy, they are most likely to base their decision on the price. "They see a high price as an indicator of good quality, even if it is no guarantee of quality," says Siems. "For example, if you don't know anything about wine but want to treat your guests to a good drop, you're more likely to buy a bottle for 30 francs than one for 3 francs."
Price judgments are often emotional. Siems, following marketing professor Hermann Diller from Nuremberg, speaks of price joy, price anger and price envy. Strong feelings - so extreme caution is required when pricing. Because negative deviations from the expected price of a product have a much stronger effect than positive ones such as price reductions, Siems recommends: "Avoid price anger, which is more important than generating short-term price joy." And a company can explain value-based pricing geared towards customer benefit to its customers through advertising: Why does the product cost five francs and not two? It probably gives them wings.
"Of course, advertising is a way of communicating prices," emphasizes Siems. "But companies shouldn't place too much emphasis on the price message. Then they turn their customers into bargain hunters. It's better to explain your pricing with advertising - then you can also push through higher prices."
Worthy prices
Because pricing, brand policy and communication are so closely linked, Siems wants to interlink them more closely again. "Pricing problems don't actually exist," says the marketing expert. "It's communication problems that cause companies difficulties. With the right communication, consumers' price judgment can be controlled." Whether consumers perceive a product as worthy of the price, for example, depends to a large extent on the messages the company uses to advertise its goods. If the advertising presents the potential buyer with a clear added value of a product or service, they will normally be happy to pay a little more for it. It is worth the price. Customers who make such value-for-money decisions are very likely to remain loyal to the provider of the purchased goods. Other consumers are fully committed to value for money. They think cheap is cool and jump at advertising that offers cheap products. Denner or the German discounter Lidl, which is pushing into Switzerland, are targeting this clientele. "You have to be careful with customer loyalty based on price," says Siems. "Because these customers move on to the next provider as soon as they find something cheaper. Such cold loyalty is limited in time, as the competition can quickly copy the price. This is not so easy with other competitive advantages."
Got on the dog
Siems divides consumers into cats, dogs and rats, an approach that has already appeared several times in current scientific discourse: cats feel tied to one place, they always go to the same store, even if the seller changes. Dogs are loyal to their masters, they always stay with one vendor, even if the product or location changes. Rats look for food. No matter what kind. They always go for the cheapest product, no matter from whom. "Each of us has all three animals in us, depending on the product," says Siems. "It depends on the level of involvement. If it's low, you're more of a rat, if it's high, you become a cat or a dog. A provider can try to stimulate one or the other price judgment through its communication. Either 'dear customers, forget the quality aspect, only the price counts' or 'dear customers, buy quality and service. We may be more expensive, but we're better'." Which option a company chooses depends on which of the two segments it wants to focus on.
This also speaks in favor of segmenting target groups more strongly again and not trying to appeal to all consumers. This is not about offending potential customers, but about focusing communication on core customer groups. "Not every customer is king," Siems points out. "It's wrong to always chase after customers who can't be convinced by a product. You have to be able to do without certain customer groups and have the courage not to approach them. It is better for companies to refocus on their core customers and pamper them - especially during the crisis. Otherwise they feed the rats and ruin their brand." Companies that focus on one or a few customer segments also find it easier to recognize their customers' needs and tailor both their offer and their prices precisely to these buyers. Then it is also very easy to find the right advertising message.
Anne-Friederike Wilhelm
Putting a leash on false price perceptions: In 2000, Swisscom made the view of its consumers the focus of its advertising campaign.
In 2003, Swisscom advertised with a study on price estimates and reality.
