Signal Pricing

Description

Set your price in order to send a message.

First ask who are you sending the message to. Is it end customers, distributors, suppliers, or other affected parties? What exactly do you want them to think and feel? Understand first how they feel about current pricing. Do they think it is fair, good value or a rip-off? How would they feel if the price changed? What would they think about you and your brand? Would their perception of you change temporarily or permanently?

You can never set a price without sending a signal, so be deliberate about this.

Example

A market entrant sets their prices just under the market leader, sending a signal to the leader that they are not a threat to the leader, and (to customers) that their products are comparable to the market leader's products.

A luxury goods manufacturer sets their prices high in order to show they are the best.

Discussion

Whether you intend it or not, your price will send a signal. Of particular note is the price-quality heuristic, where a higher price sends a signal of higher quality (and conversely, a lower price may indicate lower quality). Higher prices also indicate exclusivity and status ('only the rich can afford this').

Price relative to that of competitors can also send a signal, and to the competitor as well as to consumers. When you price sharply below that used by another company, you are sending a signal to them that you are prepared to fight them on price. It may well also indicate that you have a lower cost base and can afford to price as such.

You can also send messages to other parties. For example if you set your prices low, you send a message to your supplies that they must also be able to supply low-priced parts. You can also use lower pricing to send messages to governments, social groups and others that you are on the side of the customer and not just profiteering.

You can of course use other methods of pricing at the same time. The key is to always be aware of the signals you send and ensure these are as you intend.

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Signal Pricing

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