[MUSIC] In previous videos, we talked about signature behaviors. And in this video, I'm just going to talk about one aspect of your marketing mix, which we don't traditionally think of as a signature behavior and that is pricing. We tend to think of pricing as something that gives us margin. As a matter of fact, for many companies, maybe three out of four, they use some version of a cost plus pricing. They think they have some knowledge of their costs, more or less. They think about what is the margin we want to have and they create a price based on that. Now there's lots of issues with that approach of pricing, but what I really want to focus on here is actually how can we turn our pricing into something that brings the brand to life. Or that shines a bright light on those aspects of our brand that we use for differentiation. So it's a really hopefully new aspect of pricing, it's an area I've been exploring with my colleague Marco Bertini. He was formally a colleague of mine here at London Business School. And he's now at ESADE in Spain. And what we've been looking at in various case studies and I'll talk about some of them here is this notion of brand and pricing and how do they go together. And the first example I'd like to give you is IRONMAN. Now you might be familiar with the IRONMAN case. This is a very, a sporting activity and there's three aspects to it. And this race was really born out of seeing who's the toughest athlete here. Is it the swimmers, the bikers or the runners? And the way this event was conceived, it was to have a 3.8 kilomter swim, which is more than I can swim at least with a smile on my face. 180 kilometer bicycle ride, followed by a full marathon of 42.2 kilometers. Now, this of course is an exhausting event, but it's not so much about the event that I want to talk about, but how do we price this event. Today it is a very popular sport that events all over the world. Regarding the Ironman, and it takes a huge personal, emotional, physical investment to even get to the level that you can compete. And then you have to find events that you can actually get a spot on. And some of the events, recently one in New York, literally went online within minutes. It sold out. And we're talking about hundreds of dollars in this case for the ticket itself. And many times because of injuries and so forth and you don't know whether you can actually make it, people will try to get entries to multiple events and they can maybe only go to one of them. So it's quite a frustration for the athletes to compete. Now the IRONMAN event, what it gives people, is something you cannot buy. It's something; and also once you have it, nobody can take away. Unlike a luxury car that can be repossessed or a dream home or anything like that. You're an IRONMAN for life and you've earned it through physical effort. So what IRONMAN decided to do to deal with his pain point is to create what they called the IRONMAN Access Program. And this was for a mere $1000, annual membership, you could become an IRONMAN member, which was kind of a VIP membership. And it allowed you to get early access to register for the IRONMAN events. Now, you might think this is a great idea. We can generate extra revenue. There are a couple of other benefits you have with this, but they weren't really valued by the athletes. So you might think this is a great thing to have, but it's not because it's completely incongruent with the brand. The brand is about earning something that you cannot buy. And buying your way into the event in the first place, it doesn’t match, and there’s a huge consumer backlash. And within days, the CEO was apologizing online, and within months the CEO was no more. So you can see this dramatic example of when the pricing is really off brand. It doesn't fit. Now, there's many other examples of off brand pricing, I'll just give you a few examples. Think of a luxury goods company, a true luxury goods company. Should they offer discounts, seasonal discounts, on their goods? There's many reasons this might not be a good idea, because you're putting price into the focus, where price really is not in the focus for luxury goods. And you might be bringing the wrong kind of customers into the brand. The ones who cannot afford the high end luxury, you might be making the brand more ubiquitous, more available that it really should be. So that's another example of maybe off brand pricing. You might also think of, for a business to business setting let's say, you operate in multiple countries. And you offer certain level of services which are part of your offering. They're not pricing per se but let's say you've got a big customer in your home market and then this customer has smaller operations in different parts of the world. Now should you kind of use local pricing, to give them a service level that they deserve for being small customers in that market, or should you give them the pricing for being a global customer? For most companies it doesn't make sense to treat them as a small customer and to give them a non-VIP treatment in these small countries. You want to treat them as a crown jewel if you will, across the world, okay? That's another example of off brand pricing. A final one might be where local hotel management being part of a chain is allowed to profit maximize locally and they figure out that, you know what, if I charge my travelers some horrendous fee for Wi-Fi access. I will locally profit maximize. What that does though, it might so irritate the customers, that they do not become loyal to the brand. And across the different hotels, you might not be maximizing profits. So local pricing can get in the way of global profit maximization, okay. Now, when is pricing truly on brand? Well, let's go back to the London Olympics. They created what is called the lottery system, that everybody was able to have access to the Olympics. It was all about participation. You didn't have to be fabulously wealthy to buy the tickets. And the whole notion behind this lottery ticket. Yes, it was profit maximizing in some sense, because you could charge some people more and others less. But the point was that it was available to all. It was that spirit of the Olympics, that this pricing mechanism actually celebrated. Another example might be a holiday package where everything is included, you don't have to pay for these separate items. Now, you might say, how is this on brand? Well, if I'm a chain like Club Med, for example. If I promise you total relaxation, I don't want you to stress about every little payment you have to make for every little item. So, you're taking that away. And the customer that's really is part of your branding. It's not pricing only, it's branding as well. SKF is a ball bearings company that says look, we compete at a 30% higher level with lots of low cost providers of ball bearings, but it's not about the cost of the bearings, it's about the total cost of ownership. So they have profit, they have savings, total cost of ownership guarantees, they get paid on performance. That's another example of pricing being on brand. Rush diagnostics, which has high-end medical equipment, is also competing with low cost brands. They're dealing with procurement officers, and they complain, they say look we all offer all these services, but what were they doing? They had bundled those services in the overall cost. They never spelled it out, they never took a bright light and shone it on those services, would differentiate them from the lower cost providers. So what they did is, basically they unbundled. The services from the product. They had different service offerings, they used conjoined analysis to figure out how much these are worth to different customers. And then they had a different pricing scheme. The naked product itself, the bare product was priced 10% higher than the low cost competitor. Their brand allowed them that kind of premium. And then the discussion became about value-added services, this was no longer about cost, it was about services. If you think about a brand like John Lewis, their tagline is we're Never Knowingly Undersold. And if you can show them that actually a good is on sale for a lower price elsewhere. They will give you that same discount. So that's another way of pricing is on brand. And the final one is Prete a Monger, which is a sandwich store. Fresh sandwiches, they're handmade sandwiches everyday, and they're all about freshness. Now, imagine that they gave you a discount on the sandwiches towards the end of the day. What would that signal? It signals that they're no longer fresh. So, they never discount their sandwiches. Not a luxury product, but it's one about freshness. Instead, they give them to the homeless at the end of the day. So these are all examples where either the pricing is on brand or off brand. And pricing as such is really a signature, or it can be a signature aspect of your branding. And my guess is you haven't thought of it that way. Maybe it's time you did. [MUSIC]
