Five pricing principles marketers can use to foster greater consumer happiness
Customers are becoming increasingly savvy about pricing tactics, but there are ways for marketers to avoid resentment. However, they come with a catch.
It’s almost too easy to put the boot into BBC director-general Tim Davie’s claim earlier this month that “most households are pretty happy paying a licence [fee]”. Presumably he was working back from the fact that the vast majority, when required by law to stump up their annual £159, duly do so.
This is like inferring that the victims of a machete-wielding mugger who invites them to part with their watch and their wallet in exchange for a book of his poetry are happy with the trade. There may indeed be some who, struck by the quality of the verse, deem it worth the spoils; it’s a funny old world. But to extrapolate from compulsion to contentment is ludicrous and my guess is that Davie knows it but tried it anyway.
Later in his commentary – at a sights-raiser event for colleagues – he veered from silly to nasty, as he noted that the “glorious” BBC was faring much better than arch-rival ITV, which is facing financial pressures. How errant of his ITV counterpart Dame Carolyn McCall not to have adopted a pricing model that compels a chunky annual payment no matter how much or how little of its content is viewed and threatens with imprisonment those who refuse to comply.
The suggestion that critics have put back to Davie is that the BBC should switch to voluntary subscription. Then, if our citizens in their millions do indeed willingly sign up, the ‘happiness’ claim will be justified.
Except, actually, it’s not as simple as that. Nothing, when it comes to pricing, ever is. Are customers of the streaming services out there happy right now? You might want some of the content that comes exclusively with Sky, but you’ll be bundled into accepting add-on services you might not really need, like their landlines and broadband. If you go along with it, because it’s wretchedly difficult not to, are you happy?
Maybe we owe Davie. Without knowing it, he has shone light on one of subtlest and murkiest decision territories in marketing: the relationship between pricing and happiness.
The price structures of some of the other streamers are no less rococo and mysterious, and come with nagging doubts about how your data is being plundered. The happiness you feel playing through the brilliant content is tempered by the sense that, somehow, you’re the one being played.
Or try getting out of something you’ve signed up to, like I did recently for WSJ, which I’d needed for two years while writing a book but reckoned I could live without now. It’s virtually impossible to escape – one of those chores that I’ll park for now until I have the time and the temper to nail it. If the publisher’s subscriptions team counts my continuing custom as happiness, they are deluded.
Even in much more mundane consumer interactions, pricing has the power to polarise emotions. Picking up those groceries in a two-for-one promotional deal feels good, but how do you feel when the price is back to normal again? In your mind, that little nag is set off: if the manufacturer and the retailer could make a profit at the discounted price, how much must they be raking in when it, effectively, doubles?
So maybe we owe Davie. Without knowing it, he has shone light on one of subtlest and murkiest decision territories in marketing: the relationship between pricing and happiness.
This is not something marketers routinely think about since, in my experience, they rarely think about pricing at all. It is one of the four marketing ‘Ps’ that they willingly, and with some relief, assign to others in the corporate firmament.‘It only works if it all works’: Marketers on ‘reclaiming’ the 4Ps
But marketers think a lot about consumer happiness, so this is the opportunity to explore how the whole business of payment could be part of achieving it. What are the pricing principles that could help foster greater consumer happiness with their commercial transactions? I suggest five – but, as you’ll see later, there is a sting in the tail.
1. Pricing should be simple and transparent
Unbundle. Be consistent. Help people understand what they’re paying for. I mean, why can I buy a one-portion Tesco lasagne for £4, £3, £1.70 or 75p? What do all those price differentials reflect?
Many brand teams adopt a ‘good, better, best’ range and pricing structure, then always struggle with the middle one – sort of not as basic as the bottom end but not as fancy as the premium choice. How about start with just one good option at one fair price and then work out if additional choices would work for the customer?
2. Price elasticity should be limited and logical
Consumers understand the law of supply and demand and accept that a certain elasticity in price comes with it. But there are limits. And it is never a good look to be profiteering from temporary scarcity.
3. Subscriptions should be simple to start and even simpler to stop
No, I don’t want to call you, I don’t want to tell you why I’m leaving, I don’t want to work my way through the nether regions of your digital ecosystem to find ‘cancel subscription’ and I definitely don’t want to recommend to a friend. Make it simple or I’ll tell everyone I know to avoid.
4. The word ‘free’ should never be used
If research I’ve attended over the past few years has confirmed anything, it’s that consumers are increasingly marketing literate. They know there is no such thing as ‘free’ and speculate readily, and in general accurately, on what the profit model really is. And the younger they are, the more cynically they resent the sleight of hand. Claiming ‘free’, opting for ‘freemium’ models, is a habit to break before you have a consumer mutiny on your hands.
5. It’s worth pegging price to the ends, not the means
‘Outcomes based agreements’ are a burgeoning pricing alternative, especially in the world of business-to-business marketing, since data is now available to measure what the customer actually gets out of the transaction, rather than what the supplier puts in.
In their 2020 book The Ends Game, Marco Bertini and Oded Koenigsberg give numerous examples of the principle in practice, the sweetest of which is the Spanish comedy theatre that charges customers ‘per laugh’, at 30c a go, with a maximum charge of 80 laughs (€24) per show.
OK, so here’s the sting in the tail. Happiness pricing is a long play. The more tricksy alternatives, with their come-hither seduction and too-good-to-be-true introductory offers, are far more likely to fill the short-term coffers.
Revenue bounty today or deeper consumer commitment tomorrow? The short view versus the long. It’s a classic marketer’s dilemma, and an unhappy one at that.