what i learned wednesday

Pricing happens to be one of the easiest marketing factors to change.

It also happens to be one of the easiest ways to kill trust and ruin relationships with your customers.

In other words, it may be easy, but that’s not to say that pricing-related decisions are uncomplicated. Pricing, and price promotions, have the ability to do the most damage to a brand, in the least amount of time.

Having a deep understanding of the multifaceted factors that all fall under “pricing” (e.g. how will the sales team execute on this strategy?) is one of the most underrated skills in a marketer, or any business person, for that matter.

When it comes to pricing strategy, as marketers we must be aware of whether we are acquiring or retaining customers. If we are acquiring them, we in turn must know where this source of volume is coming from. These customers are either new to the entire category itself (or we are creating a “new category”), or we are earning share from our competition.

It would make sense that that any pricing tactics, therefore, encourage trial in some way to acquire this kind of new customer. In this case, you’d want to clearly define how you interpret a current customer, and you’d have to clearly define who you are “stealing” share from. If it’s vague, then you might just be setting yourself up for an undisciplined approach, and if it doesn’t work, you’ll have to guess at why.

If marketers are in a position of retaining our current customers, pricing and marketing tactics must be aligned with our other brand objectives: delivering the product or service performance, and maintaining and building customer loyalty. Like maintaining anything, maintenance of brand inertia takes consistent work. Steep price changes that happen overnight are a sure way to threaten that loyalty.

For a store like Kroger, it would make sense that a pricing strategy would have a continuity objective. What else might you see under this strategy? Tactics may include product improvements or product line extensions (which would then be advertised), a strong customer relations team and/or loyalty programs, and promotions aimed to get more “share of wallet.”

And, in the case of Kroger, sending out coupons to the “most loyal” to get them to come to Kroger more often is exactly what we see in the marketplace right now.

Pricing and pricing strategy not only acts as a strong signal to customers, but it should also be important to your shareholders. After all, savvy, long-term investors know that companies that do have the power to increase prices and keep their customers, are the strongest of companies.

But note that these companies — such as Starbucks, for example — do not increase their prices too sharply at once. Instead, they demonstrate their ability to raise prices slowly over time. This pricing strategy not only demonstrates a powerful business model, it also shows disciplined and highly strategic leadership guiding the brand.