In the academic literature customer oriented pricing methods such as conjoint measurement have been a hot marketing topic for the last decade. Somehow it is surprising, that Swiss research shows that such methods are still rarely used in management practice. Experiences from the consulting business support this finding though. The vast majority of firms I’ve dealt with, management might be at best aware of the importance of customer oriented pricing, but doesn’t know the methods of measuring customers willingness to pay. Mostly, prices are determined by costs plus margin, usually considering the price ranges of the relevant competitors.
The fact that many firms lack knowledge about customers willingness to pay raises the question of whether firms don’t choose to or don’t know how to consider the customers perspective. Out of my point of view, the answer is clear: in regard of current methods of conjoint measurement, the potential for pricing optimization in Swiss firms, meaning primarily increases of a firm’s profitability, is high. Analysis revealed that in major Swiss firms a price increase of only 1% would boost profits up to 30%. This leverage amazes many marketing managers and executives.
In line with the high potentials of the price as a marketing instrument are the risks that go along with it. Price cuts for instance have a direct impact on profits, cause competitors to take counteractions, enhance the threat of price wars, and complicate future price increases. Successful pricing projects therefore require a comprehensive analysis of the pricing situation which demands sophisticated marketing and pricing knowhow.
|About the author: Micha Trachsel earned a PhD in marketing at the Institute of Marketing of the University of Bern and is working as a senior consultant at Input, Unternehmens- und Marketingberatung|