Hello friends!
So this semester I am taking my electives at Rotman, one of
which being Pricing. I took this class because I figured if I am going to be a
brand manager or work with brand managers, understanding how to price the
brands which I am involved with is probably pretty important.
Also, from when I worked at Dell, when we made any new
marketing initiative, the price of the products we were advertising was almost
always the biggest issue. Pricing was in
fact such an important consideration that several members of the marketing team’s
job was almost entirely pricing products! I had a basic understanding of what
they did but now wanted to really get it, so I could be a more complete
marketer upon finishing my MBA so here I was.
I know MBA school often gets knocked for making students
study cases of really random industries unrelated to that which you will
ultimately work in but the cases are actually pretty useful for practice, in
this case, practice pricing products and services. Especially because there are so many ways to do it.
It’s a lot of math to even figure out how much your products
COST never mind what you will price them at! Things that one normally takes for
granted, like the electricity in your building (overhead), is actually built
into the costs of stuff you buy. This actually helps explain why Walmart can
offer such low prices- they cut corners on almost EVERYTHING in their company
(note that I said “almost”; they spend a lot on technology and such which helps
give them their competitive advantage but I digress). So for
example, by having offices that look like they belong in 1960 means their costs
are lower and therefore can ultimately price lower.
This also explains in part why when I was working at
Dell, we were always undercut by Acer. Acer had SUPER lean Canadian operations
compared to Dell- like 5 people working in its Canadian marketing department
while Dell Canada had like 25. So of course now, each Dell computer had to
recover the costs of more salaries than Acer thus the price difference (all
else being equal). This would be cost-based pricing and is I think, why my
pricer colleagues were using most of the time.
Besides cost-based pricing there are some other pricing varieties
as well. One thing that I thought was pretty cool was a study my prof (Dilip
Soman) did on how different pricing plans influence product use. i.e. for a gym
membership, to encourage usage, it is better to offer monthly pricing plans
than annual ones. This is because when you pay each month, it is a reminder
that you are still paying for the gym and therefore should probably use it. But
if you pay annually, a month after paying your membership fee, life gets in the
way of going to the gym and you forget about it. (I am probably the exception
to this rule- annual or monthly membership…I am going to work out!) Consumer
psychology with pricing! Fascinating.
Besides psychological or cost-based pricing like what I
talked about above, another way is “value based” where you basically just pay
for what you actually want (i.e. what you value). This is why cellphone plans
exist, for example- by having different pricing options for different types of
people, Rogers, for example, maximizes profit because they can meet the needs
of every type of customer. People will be more likely to buy if they know they
are paying only for stuff they actually want.
Thanks to our delightful pricing class, once I get back to
work in a few months, I will be ready to make some awesome prices for whatever
I am marketing to help my team make some big $$!
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