Thursday, April 05, 2007

Pricing - the least professional element in marketing?

While Phil Kotler in 1970 identified pricing as one of the four "P's" of marketing, it has probably received less imaginative attention than any of the others. While some work has been done on the passive management of pricing of products and services, very little has been done on changing all the moving parts to optimize price. The reality is that quite often, some "added value" can justify a higher price. Sometimes the added value even saves the company money. In the early days of touch tone dialing, the consumer would happily pay an extra $ per month for it, even though it saved the phone company money by reducing the load on the network. Dell computer's "build to order" process provided the consumer with a more modern computer, faster while saving the company huge inventory costs. Of course, now with the shift away from desk tops to lap tops, ergonomics are more important and consumers want to handle and try out a machine before buying, so the value mix has changed. When rice is parboiled it becomes less sticky, easier to cook, but also more resistant to infestation and with fewer broken grains after hulling and milling, so yields are higher. We have seen many apparently commodity products which have succeeded in taking prices up by providing added value to the customer.

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