I love, actually I need to start the working day with a coffee. To be precise, a latte from Costa. And every day I can’t believe I’m paying £2 for a takeaway coffee. How did the coffee houses persuade us to pay such an outrageous price which appears to bear no relation to cost?
To be fair, when we price products for our gift shop Your Life Your Style, it’s not as simple as taking the cost and applying a standard percentage mark up. There are a number of factors we take into account. As I always tell businesses who consult me, you first must consider the market and set a price appropriate to it.
As retailers, we have little say over the product’s position in the market, so we move straight on to how many we expect to sell and how much customers are willing to pay. At Your Life Your Style, we rarely expect to sell products on a mass scale because we offer special gifts and accessories.
However, if we can sell a reasonable number, we can afford a lower margin and make the profit we need through scale. Going back to my old theatre marketing days, I think of the example of Christmas pantomime where the type of audience and the numbers who attend allow for lower prices than for, say, a musical.
On the other hand, if the market is more niche, it is necessary to charge more. Opera comes to mind as a case where, at least when I was trying to sell it, no matter how cheap you made the tickets, there were only so many people interested in buying. At Your Life Your Style, we may go for a higher than average profit margin if we know a product is unique and may take some time to shift.
Of course, how people themselves value the product will have a big influence. And this is where it gets more complicated. Marketing, word-of-mouth and the intrinsic qualities of the product will potentially affect a consumer’s attitude to a product. They may have an emotional attachment to it or make a rational decision about its quality or simply want to show off that they have the taste or money to purchase it. Whatever the reason, if a customer believes the product to be exceptional or life enhancing, they will pay a premium for it.
This is why we don’t automatically charge the lowest price we can afford based on cost. A cheap price means to many people an inferior product because that is what they’ve learned from experience. No doubt Chanel could charge less but their customers want to buy an expensive perfume. In fact, perfume manufacturers and other fashion brands like Levi have fought hard to stop their products being discounted and thereby ‘cheapened’.
Back to coffee (and I am beginning to feel like another latte), Starbucks managed to persuade us that we were getting something special. Special beans, specially roasted, freshly ground, customised to your taste and in a social club atmosphere. Hence the special price. Then everybody started imitating it but the strange thing is, the more popular premium coffee became, the more the price should have come down. Yet it didn’t.
Initially Costa and the rest wanted to show they were the same quality as Starbucks, so they matched the prices. Even so, in all the years since, no-one has broken ranks and reduced prices. I read that at a blind tasting people preferred McDonalds coffee to Starbucks but it will take some persuading people that you don’t always get what you pay for.
Knowing the price people will pay forces Your Life Your Style reluctantly to turn down some excellent products where the cost is too high, taking into account all our overheads. For example, we have found that some (not all) products hand crafted in Britain are so expensive to produce that the retail price looks hugely expensive when compared with either something handcrafted in the third world or something mass produced. Every product must earn the time and space it takes up.
There is always an element of trial and error in pricing. We know there is a tipping point at which a product sells, so it’s easier to start with a higher price first and, if the product doesn’t sell, lower it. This then gives us the opportunity to employ the other great pricing tool- the bargain. Some more cynical businesses deliberately charge a high price to establish that something has a value, not expecting the product to sell, then cut the price. This way, people don’t see it as ‘cheap’ but rather a ‘bargain’.
We prefer to price fairly from the start, because we know that customers have no respect for cynical businesses. Their spend with a gift-cum-lifestyle shop like ours is entirely discretionary so we need their respect. To me, getting the price right is a constantly challenging element of running a business. There is no easy formula but if you get it wrong, all your other good work goes out the window.
Showing posts with label pricing. Show all posts
Showing posts with label pricing. Show all posts
Saturday, June 13, 2009
Thursday, February 19, 2009
The Curse Of Booking Fees
In times of recession, customers look for value. So I wouldn’t be at all surprised to find people balking at paying a booking or processing fee for something they reasonably expected to be part of the price. (You don't pay Sainsbury's an extra fee for putting your can of cat food through the till.)
Even if we pay the fee, our opinion (and therefore our loyalty) of the company goes down.
I’m aware from my own experience that contracts between theatres and producers are often based on a percentage of box office. Naturally theatres and agencies are reluctant to let promoters have a percentage of the 'fee'. Even so, they must find a way to introduce a clause that allows them to deduct a processing fee from the money owed. Companies like airlines and theme parks who own the entire process have no excuse at all.
Even if we pay the fee, our opinion (and therefore our loyalty) of the company goes down.
I’m aware from my own experience that contracts between theatres and producers are often based on a percentage of box office. Naturally theatres and agencies are reluctant to let promoters have a percentage of the 'fee'. Even so, they must find a way to introduce a clause that allows them to deduct a processing fee from the money owed. Companies like airlines and theme parks who own the entire process have no excuse at all.
Thursday, September 04, 2008
Do Cheap Tickets Build Audiences?
The Sun newspaper recently ran an offer that enabled readers to see Don Giovanni at the Royal Opera House in best seats for £12- something of a bargain since my local arthouse cinema is charging nearly £20 to see it on a screen by live link. This was one of many initiatives over the years by the Hamlyn Trust to encourage the less well off and the unconverted to enjoy ballet and opera- or to put it another way, break down these art forms’ elitist image. This is not dissimilar to the National Theatre’s £10 ticket offers.
I would love to know the level of success because my own experience is that these kind of offers tend to be taken up by existing fans happy to get a cheap ticket or by people willing to spend say £10 but not the normal price. Either way, the audience is not significantly increased.
I don’t doubt that price is an issue for many people considering attending ballet and opera but I don’t think it’s a case of saying, “Try it and then you’ll see it’s worth £50.” If people can afford those prices, the chances are they will give it a try when they’re ready.
Which leaves us with the intractable problem- how do you diversify the audience for the arts? Or to put it another way, how can you justify public subsidies for art forms that are only enjoyed by the well-off middle classes?
My suggestion is a national registration scheme that gives people a discount card if they can prove their income is below a certain level. For many this would simply mean showing that you are in receipt of some kind of benefit or family credit, for others it might mean providing proof of earnings. Then all subsidised art forms should be obliged to make 10% of their seats available at a realistically cheap price (compensated if necessary by raising the full prices) on a first come first served basis to those in possession of a discount card.
I would love to know the level of success because my own experience is that these kind of offers tend to be taken up by existing fans happy to get a cheap ticket or by people willing to spend say £10 but not the normal price. Either way, the audience is not significantly increased.
I don’t doubt that price is an issue for many people considering attending ballet and opera but I don’t think it’s a case of saying, “Try it and then you’ll see it’s worth £50.” If people can afford those prices, the chances are they will give it a try when they’re ready.
Which leaves us with the intractable problem- how do you diversify the audience for the arts? Or to put it another way, how can you justify public subsidies for art forms that are only enjoyed by the well-off middle classes?
My suggestion is a national registration scheme that gives people a discount card if they can prove their income is below a certain level. For many this would simply mean showing that you are in receipt of some kind of benefit or family credit, for others it might mean providing proof of earnings. Then all subsidised art forms should be obliged to make 10% of their seats available at a realistically cheap price (compensated if necessary by raising the full prices) on a first come first served basis to those in possession of a discount card.
Monday, January 29, 2007
iTunes Pricing Makes No Marketing Sense
You have to respect Apple- they clearly know a thing or two about marketing- but I really don’t understand their iTunes pricing policy. It makes no sense to me to price everything the same- every song 79p, every album (with rare exceptions) £7.90.
I can only think the strange kind of monopoly they have means they feel they can ignore basic principles of pricing as a marketing tool. Or maybe it’s because they operate in cyberspace where, with no physical stock, they don’t have the problem of being stuck with piles of unsold CDs.
Normally you would expect to offer a special low price on a new popular product so that you shift higher volumes at a lower profit. You might charge a higher price for something less popular because you are only moving small numbers and therefore cost per unit is relatively high. And of course you always want to knock out dead stock at bargain prices. None of this applies if everything takes up the same space on the server and costs the same to sell. On the other hand, wouldn’t a bit of price cutting help increase turnover?
That’s just looking at iTunes from a marketing perspective. CDs are often cheaper or more expensive because of the level of royalties payable or the promotional costs- hence some incredibly cheap re-issues of old recordings. How does this affect the business model of the record companies if every itunes sale yields the same return?
From a consumer’s point of view, how can Apple justify charging the same for a song which is out of copyright as one which is paying massive royalties to the recording artist? And, since cyberspace is so cheap, how do they have the nerve to charge £7.90 for an album which you could have in your hands and with a nice booklet for perhaps £8.99, when they incur none of the production, storage, distribution and sales staff costs associated with discs? We British may feel particularly aggrieved when you consider that in the US you pay 99 cents a track whereas in the UK you pay the equivalent of $1.50.
To a marketing person like me, this is adding injury to insult.
I can only think the strange kind of monopoly they have means they feel they can ignore basic principles of pricing as a marketing tool. Or maybe it’s because they operate in cyberspace where, with no physical stock, they don’t have the problem of being stuck with piles of unsold CDs.
Normally you would expect to offer a special low price on a new popular product so that you shift higher volumes at a lower profit. You might charge a higher price for something less popular because you are only moving small numbers and therefore cost per unit is relatively high. And of course you always want to knock out dead stock at bargain prices. None of this applies if everything takes up the same space on the server and costs the same to sell. On the other hand, wouldn’t a bit of price cutting help increase turnover?
That’s just looking at iTunes from a marketing perspective. CDs are often cheaper or more expensive because of the level of royalties payable or the promotional costs- hence some incredibly cheap re-issues of old recordings. How does this affect the business model of the record companies if every itunes sale yields the same return?
From a consumer’s point of view, how can Apple justify charging the same for a song which is out of copyright as one which is paying massive royalties to the recording artist? And, since cyberspace is so cheap, how do they have the nerve to charge £7.90 for an album which you could have in your hands and with a nice booklet for perhaps £8.99, when they incur none of the production, storage, distribution and sales staff costs associated with discs? We British may feel particularly aggrieved when you consider that in the US you pay 99 cents a track whereas in the UK you pay the equivalent of $1.50.
To a marketing person like me, this is adding injury to insult.
Sunday, December 31, 2006
Yours for a tenner
As I was saying yesterday, pricing is an important marketing tool. Price-cutting, if not handled carefully, can seriously affect our customers’ concept of the value of our products.
Take theatre tickets. A £50 price tag tells our audience that this is a large scale West End musical. £20 says it’s a mid-scale play in a local venue. The price doesn’t guarantee that you’ll like the show but it indicates the production values. There is no point in selling a top West End musical at less than £50 because customers will think it must have cheap sets and three people in the chorus.
So, when the National Theatre sells seats for £10 that would normally cost £35 or more, potentially this undermines theatre audiences’ expectations. Not about the NT of course, because their audience know their reputation and that they have a subsidy, both of which guarantee something more substantial than the typical small-scale arts centre product normally available at that price. The problem is that people who have heard about the £10 tickets may no longer be sure whether they are being ripped off by the usual price at other theatres or whether other low priced tickets might also actually be high value productions.
The NT have a sponsorship deal which can be used to explain the low price without undermining the value of the tickets but they made too little of this and too much of the way £10 tickets would fill empty seats, implying those seats were currently overpriced.
Take theatre tickets. A £50 price tag tells our audience that this is a large scale West End musical. £20 says it’s a mid-scale play in a local venue. The price doesn’t guarantee that you’ll like the show but it indicates the production values. There is no point in selling a top West End musical at less than £50 because customers will think it must have cheap sets and three people in the chorus.
So, when the National Theatre sells seats for £10 that would normally cost £35 or more, potentially this undermines theatre audiences’ expectations. Not about the NT of course, because their audience know their reputation and that they have a subsidy, both of which guarantee something more substantial than the typical small-scale arts centre product normally available at that price. The problem is that people who have heard about the £10 tickets may no longer be sure whether they are being ripped off by the usual price at other theatres or whether other low priced tickets might also actually be high value productions.
The NT have a sponsorship deal which can be used to explain the low price without undermining the value of the tickets but they made too little of this and too much of the way £10 tickets would fill empty seats, implying those seats were currently overpriced.
Saturday, December 30, 2006
The Price of Marketing
What was that DVD you were given for Christmas worth? Did your relative love you enough to pay £15 for it or did they shop around because they only wanted to spend a fiver on you? Zoe Williams said in The Guardian that pre-Christmas sales and the internet were destroying our sense of what gifts are worth. In a similar vein, the editor of Music Week recently bemoaned the way Tesco had been selling Lily Allen’s CD for a fiver earlier in the autumn, saying it undermined the value of CDs.
Now you may feel that it’s all to the good that the cost of over-priced products is forced down. The problem is, price has always been an important part of marketing and if our customers cannot get an indication of the quality from the price, we have lost a useful marketing tool.
Discount offers are useful but they work best when they can be judged against a standard price and when there is a clear reason for them. That’s why an end-of-season clearance works so well.
My experience is that price-cutting may boost sales short-term but customers soon adjust their expectation to the lower price and then further discounts are needed to gain sales. Compare the way jars of instant coffee keep dropping in price and sales keep falling too, while the cost of a latte at your favourite coffee house, despite the competition, goes up and up.
Unique, or at least specialist, products will continue to command a premium price. The victims of price wars are the products in the middle that are neither top sellers nor in a niche market. These will suffer most if they are made to seem overpriced by continuous Sales and pile-them-high-sell-them-cheap supermarkets.
Now you may feel that it’s all to the good that the cost of over-priced products is forced down. The problem is, price has always been an important part of marketing and if our customers cannot get an indication of the quality from the price, we have lost a useful marketing tool.
Discount offers are useful but they work best when they can be judged against a standard price and when there is a clear reason for them. That’s why an end-of-season clearance works so well.
My experience is that price-cutting may boost sales short-term but customers soon adjust their expectation to the lower price and then further discounts are needed to gain sales. Compare the way jars of instant coffee keep dropping in price and sales keep falling too, while the cost of a latte at your favourite coffee house, despite the competition, goes up and up.
Unique, or at least specialist, products will continue to command a premium price. The victims of price wars are the products in the middle that are neither top sellers nor in a niche market. These will suffer most if they are made to seem overpriced by continuous Sales and pile-them-high-sell-them-cheap supermarkets.
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