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Debunking value myths part 5: “It’s not about being cheap or expensive”

By Natasha Spencer

- Last updated on GMT

Debunking value myths part 5: “It’s not about being cheap or expensive”

Related tags: Personal care industry, Marketing

In the final part of our five-part interview with Dr. Jochen Krauss, economist, pricing expert and Managing Partner of Simon-Kucher & Partners, we learn about the final two myths of modern-day value pricing to help offer food for thought when forming pricing strategies in 2018.

'Myth#4: Customers must experience new products before they can say how much they’ll pay for it'

Sampling is big in beauty and personal care.

  • Can brands garner attention, build sales, trust and loyalty, both with or without this approach, and what impact does it have on a brand’s value?

Critically, it can be argued that if we only create items where there is a demand, then radical innovation will not flourish as consumers do not desire or require these game-changing products and services as they haven’t thought about them.

While some of these come from company ideas that are then communicated to customers, even in radical innovations, there are methods. Lead user methods, for example, use maps of markets to identify niche segments.

A sampling strategy is a way of getting consumers to know a new product. However, this product naturally is already in existence. With this said, “I do disagree with this myth”,​ Krauss relayed. Customers need an explanation but characteristics and attributes can also be communicated.

Consumers are able to articulate their willingness to pay a specific price, and this is made apparent to brands through market research. Sampling is the go to market strategy in the beauty and personal care industry.

Communicating characteristics

Brands can articulate product characteristics, but these are better received when experienced.

The personal care industry is all about product characteristics, and sampling is a smart way of allowing consumers to experience items before they make a purchase. By allowing consumers to experience the item before they buy it, you are lowering the threshold and encouraging them to make the purchase.

If we enter into the psychology of pricing, we can see that giving something away for free is highly successful for increasing willingness-to-pay. The endowment effect – as it is known – describes that behaviour: when brands give something to a consumer for free, consumer value increases simply because they now own it. Consequently, this helps to build this trust, loyalty and increases the likelihood of future uptake.

'Myth#5: Until the business knows precisely what it’s building, it cannot assess what it is worth'

  • What strategy should brands utilise to analyse their worth?

As this depends on the specific vertical market and what the product consists of, it is hard to argue in either direction. When this is applied to facial cleansers, we can see that there are specific specifications in place. It is these that then enable companies to measure willingness to pay based on features, including ingredients, functionality and technology.

It is possible within the cosmetics and personal care industry to measure this value of the product with specific technology versus not having it. To understand price recommendations, brands can perform a price architecture that simply compares and contrasts similar product with or without these features.

To understand price recommendations, brands can perform a price architecture that simply contrasts similar products that have and do not have these features. Through this analysis, brands can ask what a suitable markup is.

It is this investment and emphasis on R&D, formulations, innovations via ingredients and the use of technologically advanced applications that drives value pricing strategies in the cosmetics and personal care industry.

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