Thursday, June 12, 2008

Price Perception

We may kick and scream when prices go up, but here's what really happens and some words of wisdom:

How Low Should You Go?

"Two years ago," writes Drew McLellan at his Marketing Minute blog, "we were in a tizzy over gas prices. We couldn't believe [it was] going to be $2 [a] gallon. We were outraged." Then he imagines a current scenario—with prices topping $4 a gallon—in which he asks people on the street what they would think about paying $2 a gallon for their gasoline. "They would weep for joy," he concludes. "In fact, it would sound too good to be true and they'd ask me 'what's the catch?'"

It's a prime example of just how elastic consumer price perception can be. And if you're wondering how to address pricing in a recessionary atmosphere, McLellan has these thoughts:

Elasticity is a one-way street. Customers never like paying more when the marketplace has reduced costs.

But it's also fast-acting. It doesn't take long for everyone accept the reality of higher prices.

This, however, is more true for necessities. We have to get around, so people will endure steep price hikes for gasoline; they might compensate, however, by cutting back on "unnecessary" expenditures like eating out or buying luxury items.

The Po!nt: Consider the ramifications of price changes before you act. "If everyone in your industry is lowering prices because of the recession," asks McLellan, "how will this hold them back when they're ready to re-raise their prices? [Conversely], how will it affect you if you resist the urge to lower prices now?"

Source: Drew's Marketing Minute. Click here for the post.

Sphere: Related Content

No comments: