10 Wrong Pricing Strategies That are Costing Your Brand Money

Whether we are making a high-value purchase, such as a car, or picking a T-shirt off the rack, we always look for the price tag — the most natural human buying behavior. Thus, it goes without saying that pricing a product or service correctly is one of the most important factors that determine its success or failure. However, we inhabit a world where laissez faire economies rule. There are many types of pricing strategy, but nothing is set in stone to determine the right price for a product or service.

A pricing strategy is based on factors like supply and demand, the perceived value of a product or service, revenue goals, marketing objectives, target audience, brand positioning, and product attributes. The trick is to figure out the right mix of factors to consider for a particular use case.

Often, despite their best efforts, marketers fail to do this resulting in iconic pricing errors. For instance, Tata Motors — one of India’s biggest automotive brands that also owns Jaguar — launched the Nano car as “the cheapest car you can get,” with the hope that it would replace bikes. It was meant to fit the budget of a lower-middle class family. However, Nano did not work in the market in the long run because, in India, a car is a status symbol, and people did not want to buy a car that was so obviously targeted at lower income groups. It just wasn’t “aspirational enough.”

This was an error in reading the cultural context. Here are 10 such common errors in pricing strategy with a few examples to help you understand better:

#1: Predatory pricing strategy that is solely practiced to wipe out the competition

Predatory pricing is one of the oldest pricing methods in the game. It essentially involves pricing your products below the competition, sometimes at a loss, to deny market access to any other players. This kind of pricing is illegal in many countries, but allegations of predatory pricing are difficult to prove. The notorious predatory pricing case by Airtel against Reliance Jio in the Indian telecom industry should ring some bells.

Why does this happen?

Usually, market leaders with deep pockets practice this method to shut down their competition and capture the market completely. However, competitive pricing is a much better and more ethical route to take in the long run. Disrupting the market can have its own set of challenges for the future.

#2: Looking at short-term targets vs. long-term profitability

If you are pricing your product/service on the basis of next quarter’s sales targets, and not the profitability of the organization, then you are making this grievous mistake in pricing methods. You are essentially not looking beyond your nose. Many organizations are prone to this mistake because their sales and marketing teams are under pressure to achieve targets. This kind of pricing mistake is characterized by untimely discounts or sales when products are already underpriced.

Why does this happen?

Mid-sized organizations or new organizations that are looking to expand are most likely to fall prey to this kind of pricing strategy errors. It’s vital to understand that if you undervalue your own offerings, so will the consumer.

#3: Underestimating the competition’s ability to react your pricing strategy

Looking at the competitor’s pricing is a great place to begin when setting a price, right? While you can undercut your competitors, they can undercut you too. The competition is not a stagnant force; it is dynamic and subject to the same market forces that govern you. The error here is to assume that your pricing strategy will not be met with a reaction. Any organization, irrespective of size or turnover, is a candidate for this error in pricing methods.

#4: Choosing an over-complicated pricing model

Consumers don’t like hidden costs. It makes them feel like they have been taken for a ride, and it affects their relationship with the brand. Transparency is the best policy when it comes to pricing — the cleaner your cost break-up is, the more effective your sales will be. For instance, if you are selling a modular kitchen, don’t forget to mention the demolition charges for the existing kitchen. Surprising your clients is never a good idea.

Why does this happen?

Organizations that have a high-value product or service usually try to mask the price of their offerings by providing a complicated cost structure. The important thing to remember here is that you must be able to justify the cost of an offering based on its value. If it is a great product like an Apple phone, consumers will buy it despite the high price.

#5: Not trying out multiple price points across segments

It is true that a brand must target the relevant audience. However, it’s unwise to target different segments with a flat price. Most successful products have a range of offerings with varied price points.

Many brands fail to explore different price points to target different segments of the market. This is an error in pricing methods that can cost organizations a large portion of market share. For instance, if an UberGo costs you the same as an UberSUV, then you will be confused as the end user about what ride you should book.

Why does this happen?

Organizations that have niche offerings are often skeptical to diversify their products and explore different price points within a range.

#6: Not considering the customer’s value proposition in pricing strategy

It is not enough to price your offering as per cost or your assumption of its value. You cannot miss out on what the customer perceives to be the value of your offering. To be fair to marketers, the perceived value of a product/service may not coincide with its actual value. However, one must know the pulse of the customers to avoid costly pricing mistakes. There is no better example than the Netflix price surge debacle to illustrate this point.

Why does this happen?

Large and profitable organizations that grow overconfident about the value of their offerings tend to make this pricing error.

#7: Having the same pricing strategy across product lines

There are many different types of pricing strategies. Some products are priced based on the cost of production while others for their exclusivity. There is no glove here that fits every hand. Hence, applying the same pricing strategy to different product lines is a recipe for disaster. For instance, you cannot price a fast fashion brand in the same way you price a couture fashion label.

Why does this happen?

Brands that have multiple product lines or have newly ventured into a particular product line often make this pricing mistake.

#8: Not streamlining internal processes that affect the price

It is an unsaid rule in the market that the cost of producing a product cannot be more than its price. This is simply because the organization will, in that case, incur a loss. However, the cost of a product can sometimes shoot up due to lags within the production system. For instance, if you have a broken supply chain that is bleeding capital, you cannot make the end user pay for it.

#9: Having prices that are not dynamic

The magic mantra of any modern marketplace is this: the market decides the price. And the market is a dynamic space of commerce. Brands that are too slow to understand the market’s dynamics usually lose out on the market share. For instance, Amazon Prime Video launched in India a year after Netflix, but it captured the market with its competitive pricing and quality content. So, Netflix had to react to the entry of a new player in the OTT space by coming up with a new pricing strategy.

Why does this happen?

Organizations that opt for sticky prices and have a traditional outlook to pricing make the mistake of not reacting quickly enough to the market.

#10: Not understanding the cultural context of pricing

Cultural context is a very important aspect of pricing because people from different cultures read the same price points very differently. Their perspective is often colored by the lens of their history, socioeconomic conditions, etc. For instance, in the U.S., Jeep is seen as an automobile manufacturer that makes sturdy value-for-money vehicles for adventurers. However, in India, Jeep is priced and projected as a premium brand. The logic behind this pricing is that, in India, only people who have a certain amount of disposable income are able to afford adventure vehicles and the lifestyle that goes with them.

Why does this happen?

Organizations that venture into new geographies without sufficient market research are prone to such pricing strategy errors.

Pricing is a very sensitive part of product development and launch. There is no tangible way to measure its impact, but it can be the factor that makes or breaks your business. Organizations must opt for unique pricing strategies. However, you can break the rules when you know them well. A solid understanding of pricing is imperative for senior executives in any organization. Emeritus is proud to partner with the world’s best universities to offer high-quality online sales and marketing courses.

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