In our last article we discussed the possible pros and cons of Black Friday discounting. For retailers, Black Friday signals the start of the festive shopping period. This is a really interesting time for retailers to gain a competitive advantage.
Though TV advertising is the most commonly discussed arena for competition; pricing is a factor that has one of the biggest impact on retailer profits.
The ‘Holiday’ Buyer
So, why should the way retailers price their products be any different to the rest of the year? It’s the same people buying the products, right?
Well, in some cases this is true. For example, supermarkets have very weak grounds for changing pricing considerably during the holiday season – especially for consumable products. Sure, they will run promotions and special offers to get shoppers through the door, but that’s no different from the rest of the year.
In particular, the retailers who need to pay attention to pricing in the holiday season are those selling products that could be given as gifts.
“Customers who cannot appreciate technical value
are more likely to be swayed by brand name, or aesthetics”
How Does the Buying Process Change?
Pricing is, and always has been, about perceived value. What people will happily pay for a product correlates directly with that they feel the product is worth. But why would this change at Christmas?
Let’s look at an example:
Let’s say I am a keen sport fisher. I’ve made the decision that I’d like a new fly fishing rod. This decision would then prompt at least a few hours of researching the various types of rod on the market. Due to my experiences speaking with other fisherman, and my exposure to advertising, I’m likely to have strong preferences towards certain brands and models. Once I’ve decided on a type, model and manufacturer, I’d then start shopping around. I’d find the retailer (either online or local to me) who offered the best combination of price and service.
As always, what I’m willing to pay for the fishing rod is directly in line with the combined value I perceive the transaction to offer.
Now, what if a family member wanted to buy me a fishing rod for Christmas? How would this process change? Well, to begin, they would probably figure out which type I wanted by simply looking at my iPad or computer when I wasn’t looking. But what then? Would they spend hours evaluating the various manufacturers and models? If they had no interest in fishing they probably wouldn’t appreciate the product’s value in the same way. Customers who cannot appreciate the technical value are more likely to be swayed by brand name, or aesthetics.
With the availability and high use of online comparisons the relative price of each rod to other retailers is still important, however the magnitude of the prices are less important. The point we’re making is that when people buy something as a gift the way they measure perceived value changes and this creates both pricing challenges and opportunities.
The ‘Perceived Value’ of a Gift
The second obvious, but important, factor is the inherent value in giving a gift. Whether it’s through generosity, affection or obligation, there is an inherent value in giving someone a Christmas present. This means that when gift givers make that unconscious value calculation when they buy the gift, it’s not simply the perceived value of the item. Rather, it’s the perceived value of the item plus the inherent value of giving a gift.
The combination of these two factors means that the perceived value of an item can increase significantly when it’s bought as a gift.
It’s difficult to argue against this point. However, the question is whether retailers should factor these factors into their pricing. Is it right? Do retailers have any moral obligation here? What do you think?
Are you a retailer struggling with your holiday pricing strategy? Or perhaps you’ve been experimenting with your pricing over the last few years? In either case, we’d love to hear from you. If you’d like to speak to one of our pricing specialists, please don’t hesitate to get in touch