Pricing an Essential Element of Marketing

Marketers need to consider pricing as part of managing customer engagement, David Andreadakis, Aimia director of strategy and business development told an audience at the Loyalty 360 Engagement and Experience Expo.

In order to build loyalty programs of critical mass, it is essential to understand what truly matters to customers – not just what they say matters, but what their actions show truly matters, Andreadakis said. “A lot of people say one thing but do another. You have to provide what is truly important to them.”

For example, Wal-Mart customers have cited several items as critical in deciding whether to shop at the stores – location, store appearance and other factors – but the bottom line has always returned to price.

While Wal-Mart has been able to maintain that low-price edge, other companies in other businesses may not be able to maintain that edge. If they don’t and they don’t have another differentiating advantage, the volume can unravel quickly, Andreadakis said.

Pricing might not mean as much to other customers, depending on the situation and the product involved, Andreadakis said. For example, customers will only cut their usage of gasoline marginally with price increases, while a price increase on Coca Cola can cause a huge drop-off in demand. The amount that pricing changes volume is a product’s price elasticity.

However, a drop-off in demand doesn’t necessarily mean a drop-off in profitability. In fact, there are times when an increase in price – even when a competitor cuts a price – will produce the maximum profitability.

Andreadakis encouraged marketers to work out pricing matrices to determine maximum profitability, even though such an exercise has long been a responsibility of financial people within the company.

Andreadakis recommended that companies experiment with different pricing strategies by using test marketing before making wholesale challenges. Competitor’s reaction to pricing changes also need to be considered. Cutting prices may not lead to additional sales, but instead a pricing war with one or more competitors.

Marketers also need to understand how engagement impacts sales, Andreadakis added, pointing to research showing that for every $1 spent on asking dissatisfied customers to buy more results in $10 in additional business while spending that same dollar on simply asking that customer not to go to a competitor is basically wasted.

Companies also need to determine if their marketing dollars are being wasted, Andreadakis added, saying that one company had invested in developing a complete Facebook team when only 3 percent of customers engaged with the company through Facebook. Andreadakis likened company’s concerns over Facebook “likes” today to company’s concerns over the number of Web site hits just a few years ago. More important than those metrics is how many of those consumers become customers.