Pricing… and our emotional response to it

We often tell clients that pricing  their products and services is as much art, as it is science.  The delicate balance between pricing based on a company’s costs versus pricing based on markets and the competition is complicated, and it’s extremely important to get it right.  I had three interesting experiences recently that made me realize that it’s also critical to understand how pricing decisions make your customers and clients feel and how that impacts your brand.

I made the plunge and bought a cellular broadband device (a Sprint MiFi  - it’s awesome!) for on-the-road internet access and office internet back-up.  This means I can finally get rid of my dial-up service subscription which I’ve used for internet back-up purposes.  When I called to cancel the service, they offered me progressively better deals to keep the dial-up – to the point where I could have kept the service for less than $2 each month…”forever”!  It’s obvious how difficult the dial-up business must be these days and the progressively reduced pricing made them sound very desperate.  At $2 bucks a month, how long can “forever” really be?

In the second example, I decided to let one of my gym memberships lapse (I need as many trips, to as many gyms as I can get!)  as I was put off by the crazy price increase they slapped on for the upcoming year.  Within two days of the expiration, I received an email offering a membership renewal… at my old rate.  How did this make me feel? …. like good standing members are being duped at renewal time, and that made me pretty angry.  What kind of message does that send about the organization and how it feels about its customers?

The third example is as much about branding, as it is about pricing.  I am a car guy, and a lover of all things Ferrari.  Ferrari is a manufacturer of amazing automobiles that evoke an image and feeling like no other car in the world.  Lately, however, Ferrari has also become a global brand icon, and the famous prancing horse logo has found its way on thousands of products including  baby clothes  , bicycles, Barbie dolls , cigars, legos, and other products… ad nauseum.  Ferrari also has exclusive licensing deals with top clothing manufacturers who create high end and very expensive shoes, shirts, jackets, etc.  I stopped at an outlet mall a few weeks ago and wondered into one of these clothing manufacturer’s stores to find a “bargain bin” of officially licensed Ferrari clothing.  I suppose Ferrari has little control of the pricing and distribution once the product is out in the market, but does a discount bin in an outlet mall full of once-very-expensive branded merchandise make sense for a company that sells $300,000 cars? 

It’s hard enough to come up with a pricing strategy that balances the need to make a profit with what the market will embrace.  When a business is making that critical decision, they also cannot forget about how the customers will feel about the way in which the products and services are priced, and ultimately how that impacts the brand.  It’s more important than you might think.