Swiss franc appreciation: smart prices are needed now
PRICE MANAGEMENT The sharp appreciation of the Swiss franc is leading to strong competition from foreign suppliers. Instead of lowering prices, differentiated price management is required. BY CHRISTIAN WIRTH*Companies can use a variety of tools to set and optimize their prices. The instruments work on three levels: communication, the pricing system and the product. The tools can be used to increase customer acceptance of prices and to win new customer segments.
A differentiated product range increases price acceptance and opens up new customer segments. Present benefits and advantagesA company should use the following communication tools:- Presentation of the benefitsThe basic and additional benefits of the product should be communicated to customers in a simple, understandable and convincing way, both in text and images. The weighing up of price and benefits, which is often a reflexive process for the customer, can only work in the provider's favor if the product benefits are clearly communicated. Both emotional and rational benefits are relevant here.- Presentation of the benefitsIf an offer is rated as advantageous by the customer, the supplier can impose a higher price. The possibilities for presenting the advantages of a product are inexhaustible in marketing. Here, too, the rationale and the emotions should be addressed in text and images.- Reduction of cognitive dissonanceDuring and especially after the purchase, a feeling of cognitive dissonance can arise in the buyer ("Did I pay too much for the car?"). This is a conflict that arises because the purchase at least partially contradicts the customer's attitudes or behavior. The provider can resolve this internal conflict by confirming the customer's purchase. For example, the written confirmation of an order should reiterate the advantages of the company and the product mentioned during the negotiation.
Performance and quantity differentiation for vanilla ice cream. Differentiate, bundle and set anchorsCompanies have the following instruments at their disposal when designing the pricing system:- Price differentiationCompanies should offer a product in different versions and offer these versions at different prices. In practice, this differentiation is usually based on performance, quantity, customer segment, location or time. Clever differentiation not only increases the willingness to pay, but also makes it more difficult to compare prices with the competition.- Price bundlingPrice bundling encourages customers to buy in a variety of ways. Bundling reduces the complexity of the offer for the customer (e.g. sports package), combines complementary products (e.g. starter set), segments customers (e.g. professional package), generates new needs (e.g. integration of products that customers would otherwise not notice) and promotes the sale of new or weak products.- Use of price anchorsPrice anchors use the psychological effect that context influences experience and behavior. A consumer usually makes price comparisons. A company increases the willingness to pay by offering a comparable product at a (much) higher price. In this case, the price of this product forms the price anchor. The anchor has the effect that the price of the originally considered product is no longer perceived as being so high. Restaurants use this instrument by placing very expensive wines on the wine list.at the product level, companies can use up-selling and cross-selling to maximize their customers' willingness to pay. Lock-in effects, i.e. the creation of exit barriers, are used to retain customers in the long term. Successful examples of this include offering printers and print cartridges as well as coffee machines and coffee capsules. Customers are also becoming increasingly loyal to products in terms of technology. Anyone who uses an Android or Apple smartphone and has painstakingly set it up will shy away from the effort of switching to another system.
Swisscom relies on price bundling for its mobile phone tariffs. Much more profit thanks to small changesIn addition to the instruments presented here, there are many other instruments that can be used to increase customers' willingness to pay and reach new customer segments. When applying the instruments, it should be noted that the instruments are specifically adapted to the company as part of a pricing strategy. The corporate or marketing strategy sets the framework for the pricing strategy. Customer needs, the competitive situation and the company's cost situation must also be taken into account individually. Due to the great leverage of prices on company profits - in practice, a one percent price increase often leads to a five percent increase in profits - it is definitely worth reviewing and optimizing prices.-------------------------------------- *Christian Wirth, owner of Optimal-Price GmbH, advises companies on setting and optimizing their prices. He has many years of experience in price management in the automotive, telecommunications and financial services industries. He held leading positions in marketing and key accounts for over 18 years. Since fall 2014, he has been teaching "Price Management" as a guest lecturer at the Bern University of Applied Sciences.
