03 April 2010

What Pricing Says About You

Two stories caught my attention this Easter weekend.

The first was an International Herald Tribune article about the plight of the humble Japanese beef bowl. Long considered a staple meal of the journeyman worker, the broiled-beef-and- rice bowls from the big-three bargain restaurant chains Yoshinoya, Sukiya and Matsuya have had their prices slashed from about 400 yen to 280 yen over the past four months -- in response to Japan's faltering economic recovery and as a desperate measure to hang on to their customers.

Granted, price wars were made for this: two or more competitors engaged in a deadly game of 'chicken', eyeballing each other over successive price cuts designed to decimate profits and drive the weak out of business.

But the hard-won gains come at a price. Infuential economist Noriko Hama has warned that "if we all get used to spending just 250 yen for every meal, then meals priced reasonably will soon become too expensive. When you buy something cheap, you lower the value of your own life."

Now I'll confess I've wrestled with that last sentence from the moment I read it -- even posted a question on LinkedIn to seek other viewpoints -- but I suppose that taken in context, it may not seem quite so ridiculous as it initially appeared: One could argue that sustained price wars will spark a deflationary cycle and indirectly lower workers' wages through some trickle-down effect ... which in turn may lower one's perception of contribution to society.

But I'm still straining to wrap my head round the logic of that argument (you can tell I'm no economist). So let me instead think aloud about the subliminal messages a price point can send out about a product or service:

The perception people have of a product is often dependent on the first price they associate with that product -- which in turn exerts a psychological influence on the actual benefit they derive from its use. In his book Predictably Irrational, professor Dan Ariely writes about experiments in which students were better able to complete word puzzles after drinking an energy drink that was regularly priced. When other students consumed the drink after buying it at a discounted price, they were never able to do as well at the word puzzles as those who had paid the full price.

So brand champions: think twice, think three times before you allow your brand to be irrationally (or predictably) depositioned by a price reduction. The move can retain your competitive advantage in certain circumstances. But too many trigger-happy marketers yank the price down, then are surprised when the 'value gap' is stretched and snaps. Instead of thinking, what a great deal, customers start wondering, what's wrong with it?!

So why not focus on delivering value through a standout brand experience. You may be able to sell for more. The difference between the price that you can sell, and the price that you eventually do sell at, is the value of your brand.

This is, in fact, the cornerstone of the second article which caught my attention this weekend. It was a snippet really, in TIME magazine, about restauranteur and chef Shoichi Fujimaki who charges US$110 for a bowl of his ramen (yes, that's US dollars, there are too many zeros in the yen equivalent) which takes three days to prepare. Asked to justify his price, Fujimaki explains that "it's my 25 years of experience distilled into one bowl".

I don't know how Fujimaki-san is doing, with his ramen going at 35 times more than the beef bowls around his restaurant. But I'd love to make it up to Tokyo one day for a slurp. It must be one heckuva (brand) experience.

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