How does pricing strategy work online?

Grant Leboff: Graham, when we look at online shopping and e-commerce, I want to talk to you about price strategy and how you get that right. People are shopping about, things become commoditised, they can flit between things, so how do you start to get your price strategy right? What do you have to think about?

Graham Jones: The first thing is to think about what your customers really think about your price. What do they think about your brand? Where are they pigeonholing you in terms of the levels that they are putting your at? Then it’s to try and think about; what kind of things do we need to do in order to get them to pay the highest price possible? Because, in business, you’re trying to make as much profit… but people don’t actually buy on price.

Prices one of the small things. It’s about 14^th in the list of considerations people make about whether or not to buy something. So I wouldn’t worry too much about it. I would just get your pitch right so that you are in either the top end of the market, in the middle, or the bottom end of the market – wherever your customers want you to be. It’s getting that right, rather than the individual price, that’s important.

Grant Leboff: Online, people do have this view; it’s all about price. So what are the other considerations that companies can think about and start to get right, in order to make people less worried about the price?

Graham Jones: What people are really worried about is; is this product from me? And so it’s about matching whatever you’ve got, to make sure it really matches those customer requirements. So if you’ve got exactly what they’re looking for, they will pay the price – if they have a sense of that value inside their head. So if you know what that value is, if you know what they are after, then they’ll pay whatever it is that you want them to pay.

Grant Leboff: And what are the techniques that you can use to do that? It seems to me that on one hand you’re trying to make the site very easy, three clicks and you’re out – those kind of things – to make the customer journey easy, and then of course, on the other hand, you want to build value with the customer, educate the customer as to why this is the product for them and why it’s worth spending a bit more. So how do you balance those two things going on at the same time and get something that works?

Graham Jones: The really important thing there, is to establish all of that value and brand off the Internet. A lot of people have forgotten that the Internet is only part of the world in which we exist. So if you think of a big brands like Rolex, people pay thousands of pounds for a Rolex watch, but that brand value has not been established online. It has been established through off-line, through promotions and through a whole is load of traditional branding work. When you think of those big online brands like Google, like Facebook, where did they get established? They got established in the real world. So in order to get people to want to buy from you online in a click or two, what you need to do is make sure you establish your brands in the real world, and establish the value for that brand in the real world, and then people will pay whatever your click price is.

Grant Leboff: Are there any techniques that you can use when you’re selling more of what I call, a commodity? The obvious thing for me is electronics, where I know that I want a Samsung this or a Panasonic that, or whatever it is, but obviously at that point, I know what the model is, so I can start to shop around and just check the price. Of course, at some point it gets laborious. So what can you do on your site that will make it, in our parlance, a bit ‘stickier’ and may be, prevent people from shopping around and looking elsewhere?

Graham Jones: The most important thing there, is not to make your product a commodity. There are mobile phones that you can buy for £30 but Apple doesn’t discount. Apple are £600 / £700 if you want to buy it Sim free. They don’t discount, that’s it. They’ve made sure that they haven’t turned their product into a commodity, and they are one of the leading brands with more phones in the world than many other manufacturers. So it’s not the price that’s important, it’s what people think of your product and the value it provides them.

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