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What does Brand Positioning have to do with behavioral economics?

Behavioral pricing and selling focus on the role of the price in the decision-making process. But what does behavioral pricing and selling have to do with strategic questions such as brand positioning?
Blogartikel: Markenpositionierung Behavioral Economics

Pricing and selling are aimed at making customers decide so that more customers choose your offer even at higher prices. Hence, behavioral pricing and selling focus on the role of the price in the decision-making process.

Brand positioning is about what a brand should (and should not) stand for to define the selling propositions with which the brand should appear in the market to attract specific customers (and not others). This also involves the question of how a brand should be positioned in the market in terms of price, i.e. the question of price image.

There is usually only one dimension being discussed here, and that is the price level (from low to high). However, this implies that the only relevant question for the evaluation of brands regarding price is how expensive the brand is. From the customer’s point of view, however, there are actually several price dimensions that brands can occupy for a convincing positioning, such as:

Price advantages

Some customers are less interested in the absolute price level when shopping, but rather in saving as much as possible compared to other customers or the regular price. Brands like TK Maxx serve this target group better with a 60% discount on a regular price of 90 Euro than with a 40% discount on a regular price of 60 Euro.

Price usage

Users of prepaid cards in the mobile phone sector are generally more price-sensitive than postpaid customers. However, paying only for services they actually use is more important to them than the lowest price per GB. If a mobile network brand wants to address these customers, it is counterproductive to offer more service at a lower price. The reason for that is that it makes customers feel like they pay for services they do not use and need. Ting, for example, handles the motive of price usage (“Use less? Pay less. It’s that simple.”) very well.

Price control

Those who decide to take out supplementary dental insurance are primarily concerned with the issue of price control, especially with predictable monthly costs. The advantage of price control outweighs the fact that the costs reimbursed often do not exceed the premiums paid.  Likewise, small companies with little accounting capacity often find predictable annual software fees more attractive than the unplanned purchase of licenses for updates, despite higher effective costs.

Price confidence

People who go shopping at discount stores usually replace detailed price comparisons with the belief that they will spend less on average than at a supermarket. These customers overlook the fact that individual products are often more expensive at Aldi than at the supermarket.

Along these and other dimensions, brands can differentiate themselves from the competition – without changing the effective price level. What’s more is that if the brand addresses the right price dimension/s and customer segment/s, it can enforce even higher prices. Looking through the eyes of the GRIPS customer typology:

  • A brand that advertises with price advantages will position itself in the segment of Bargain Hunters (but will not be interesting for Risk Avoiders).
  • A brand that offers only those services its costumers can and want to use (price usage) will, in turn, appeal to Risk Avoiders, but not to Bargain Hunters.
  • A brand that advertises price confidence is especially interesting for Routine Buyers who do not always want to compare prices.

A multi-brand company is therefore well advised to use one or a few price image dimensions (and not others) for each brand and consequently address one or a few customer segments (and not others). This strengthens differentiation and prevents cannibalization. Companies such as Deutsche Telekom (Telekom for Price Accepters and Routine Buyers, Congstar for Risk Avoiders and Bargain Hunters), Volkswagen (Audi for Price Accepters, Volkswagen for Routine Buyers, Skoda for Bargain Hunters) or L’Oréal (Biotherm for Price Accepters, Garnier for Routine Buyers, Maybelline for Risk Avoiders) are setting an example.

Companies considering the launch of a new brand should empirically determine which (price) image dimensions are relevant for which customers and which of those image dimensions are currently covered by other brands or competitors. Only if they do so, they can be sure that there is room for another brand in the market. We would be happy to support you in such decisions. Contact us!

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Vocatus AG Preisstrategie Behavioral Economics
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