Strategies to Influence Willingness-to-Pay

In, we argued that developing an effective pricing strategy requires understanding and quantifying the value of your offer in order to set profit-maximizing prices across segments. Yet even the most carefully constructed value-based pricing strategy will fail unless your offer's value, and how it differs from that of competitors' offers, is actually understood by potential customers. Customers who fail to recognize your differential value are vulnerable to buying inferior offerings at lower prices supported by loosely defined performance claims. The role of value and price communications, therefore, is to protect your value proposition from competitive encroachment, improve willingness-to-pay, and increase the likelihood of purchase as customers move through their buying process.

In our research, we have found that business managers rated “communicating value and price” as the most important capability necessary to enable their pricing strategies. Ironically, the same study found that the ability to communicate value is also one of the weakest capabilities in most sales and marketing organizations. In retrospect, these results are not surprising because effective value and price communications require a deep understanding of customer value (which most firms lack) combined with a detailed understanding of how and why customers buy (another shortcoming) to formulate messages that actually influence purchase behaviors.

When launched the Kindle e-book reader in October 2007, sales grew rapidly even though Amazon broke from conventional wisdom by not supporting the product launch with a traditional advertising campaign. Amazon management understood that an innovative product like their electronic book reader would quickly generate buzz that would build awareness of it in the marketplace. But, although advertising on television and in print media could reinforce awareness, it would do little to motivate customers who knew of the product but were unwilling to invest in such a radical departure from traditional books. The challenge facing Amazon management was how to help customers overcome the perceived risk that the value of being able to order and read books electronically might not justify the $400 price tag.

Amazon had to communicate the value of the new book reader to customers in a clear and compelling way to overcome the perceived risk — something that advertising alone could not accomplish. Their solution was as innovative as the product. For a fraction of the cost of a traditional advertising campaign, Amazon established a “Meet a Kindle Owner” program in major cities across the United States. Under the program, customers could meet current Kindle owners and try out the reader for themselves. The combination of positive word of mouth from Kindle enthusiasts and the ability to experience the product firsthand was enough to overcome doubts about the Kindle's value and has led to robust sales growth that has surpassed many analysts' projections, a clear demonstration of the power of effective value communications.

As the Kindle example illustrates, efffective price and value communications can have a significant impact on purchase intent and willingness-to-pay. The challenge for marketing and sales managers is how to develop effective value messages for different types of products and differences in the buying process that customers employ. It would be absurd to use the same communication approach for breakfast cereal as for computer data servers. Similarly, the approach must vary depending on whether the customer is a first-time buyer in the category or an experienced user, or whether the buyer is an individual, a family, or large corporation. McDonald's, which understands the customer's buying process well, targets many of its messages toward children because they are key influencers in the final choice for a family meal. Top salespeople in business markets also understand the need to adapt messages to different people inside a customer's organization because of the variety of roles that managers have in the buying process.

The purpose of this chapter is to explain how to develop value-based messages to reflect key product characteristics such as the nature of the benefits (psychological versus monetary) and the type of good (search versus experience). We also discuss how to adapt the message for important purchase characteristics such as the stage of the buying process or the number of individuals involved in the purchase decision. Finally, we show how to communicate prices in a way that can have a positive influence on a customer's willingness-to-pay.

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