According to mainstream marketing theory, price is decided by supply and demand and fluctuates accordingly. In today’s market however, pricing is increasingly about supply and desire. The rules of volatility have changed. The upgrade culture, shorter product lifetimes and highly efficient distribution chains have flattened the gaps between supply and demand in so many sectors, but interestingly increased the effects of seasonality. However, the actual nature of that seasonality has changed.
Pricing now has got nothing to do with how good a product or service is, what it does, what it doesn’t do or where it came from or how many of them there are. Pricing is decided by how much people want something, and the degree to which it is novel and available.
Commoditization, it follows, is also driven not by “market” forces but by desirability forces. Brands that fail to attract a strong price have lost their desirability or that desirability is fading. People then want to pay less not because the product is necessarily worth less, but because consumers want it less, which of course is why they perceive it as less valuable.
Getting the balance right between desire and price therefore is critical. According to this BrandZ survey from a couple of years back, on average only 7% of consumers buy on price alone globally, down from 20 percent ten years ago. By contrast, 81% regard brand as an important purchase driver. In other words, brand has increased in importance relative to other purchase drivers such as price, location, convenience and habit.
Recognizing that, competitive brands need to adjust their pricing based on changing levels of desire – meaning brands should monitor how much consumers want them and use this as an effective benchmark for pricing. Striking the right balance between these two factors is critical. Brands that are too expensive for the level of desire they deliver, as I have already observed, risk losing market share. Conversely, those that don’t charge enough for the desirability they deliver risk leaving money on the table.
The way I see it, there are three ways to strategize an effective desirability story that keeps pricing higher than the default market value:
High supply, high desire: The scale equation – things that everyone wants, readily available. This is a globally focused story driven by momentum (gathering interest) and recognition (peer pressure). This value proposition largely retains desire through authority and reputation in B2B and new model releases, upgrades and powerful brand awareness in B2C.
Limited supply, high desire: The cult/luxury equation – things that are deeply interested to a select group but that retain their pricing because they are deliberately fed into the market at below-demand levels. This is a scarcity story. This value proposition retains desire through exclusivity and the thrill that comes with being ‘in the know’.
Access: The social equation – the power of this approach lies less in the thing itself and much more in the access and introductions that come with being part of the network. For example, flying Concorde in years gone by only partly had to do with the speed. Of much more interest was who you might find yourself sitting next to, and the conversations that might follow. This is a door-opening story. The value proposition comes in where it leads.
Sadly too many brands are still telling availability stories: what it is; what it does; where you can get it; how much it costs. Business leaders forget this too as they obsess on capacity, productivity and innovation. Unless what is being planned, made and told is being planned, made and told as more and more desirable, it must, by deduction, be at risk of becoming less and less valuable.
Unless your go-to-market strategy is built on robust and deliberate grow-in-market criteria, you aren’t really building a brand, you are juggling a supply chain.
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