toughest P

Vinay Kamat

It is the toughest P of marketing. It is the ultimate positioning statement. Marketers are still grappling with this P in internet space. For, Pricing is not about numbers alone. It is strategy.

“Too often, however, greed gets confused with positioning thinking,” say Al Ries and Jack Trout, in their best-selling book Positioning. Where you perch the product in the customer’s mind through ads is critical. It sets the price point. It creates the value proposition.

But how do you establish a price-point when comparison shopping—using powerful search engines to scour the net for best prices—is gradually becoming the norm? How do you showcase value when brands are turning into utilities in cyberspace? How do you compete in a space where buyers set the price and sellers bid?

Forget new economy. Pricing just lacks innovation. Says marketing guru Philip Kotler: “Many companies do not handle pricing very well…Pricing is too cost-oriented; price is not revised often to capitalize on market changes; price is set independent of the rest of the marketing mix…and price is not varied enough for different product items.”

Who said pricing was easy? Yet Rafi Mohammed has come with competent answers in his recent book, The Art of Pricing. The sub-title has a tear-your-hair effect: How To Find The Hidden Profits To Grow Your Business. It simply means profit lurks in very nook and corner of your office. A net price increase of 1 per cent, for instance, could translate on average into an 11% rise in operating profit.

As the book underlines, pricing is not about number-juggling alone. It is about creating team spirit, as Ford Motors realized. When it shared its pricing information with dealers, they realized what models to push. They started focusing on higher-margin cars, raking in bigger profits for the company.

Pricing helps companies to build ecosytems around brands as well. Sony resisted the temptation to increase the price of its gaming console, PlayStation 2, when it was launched in 2000. Sony’s retail tab was $299 when auction sites were hawking it for $950, writes Mohammed. While Sony’s pricing strategy hinged on market creation, technology adoption, and media hype, the company was keen on creating a gaming ecosystem, comprising consoles, games, and message boards.

If anything, pricing helped create a culture called PlayStation.

Perhaps the best quote in Mohammed’s book is from Sun Microsystems CEO Scott McNealy, which first appeared in Fortune magazine: “In the whole history of Sun, we have never known what demand is, what elasticities are, or what the ‘right’ prices are for our equipment.”

It shows why pricing is not just a process but an art and a strategy. Indeed, it is a short-code for positioning. And those that are not clear about their positioning miss the point—and the price.