Why marketing should own pricing

Pricing is part of brand communication, so why do so few marketers take ownership for the most neglected of the four Ps?

Robin de Rooij
Robin de Rooij

Setting the right price is one of the best ways to positively impact a company’s bottom line. Yet, price setting is not always top-of-mind, nor is it owned by a single department within a company. This holds true across industries, whether it is consumer goods, healthcare, telecom, finance or technology. Sometimes marketing takes responsibility for pricing, while other times finance takes on the task. Often, we find there exists no clear pricing strategy at all in companies, and thus, no clear ownership of pricing responsibility.

We’re all familiar with the four Ps of marketing: product, place, promotion and price. For many of us, it seems natural for marketing to own or at least be involved in the first three, but pricing is usually left to other functions. Maybe it’s because the first three are a more natural fit for someone with a creative marketing background, while price is seen as more quantitative in nature—more fitting for someone who loves analysing spreadsheets. Maybe this is the reason it often falls to finance to make decisions on pricing.

However, for a pricing strategy to make sense, it has to work for consumers, or they will stop buying the product. When this happens, it doesn’t matter if a theoretical profit model is being satisfied. Focusing on consumers should always drive our decisions, regardless of which P we’re talking about.

There are three big reasons why marketing should get involved and take ownership on that last P of marketing.

1. Market research knows how to talk to consumers

Pricing is part of brand communication, and it has to be in sync with the rest of the message. We can’t communicate luxury in our advertising and price at a discount, or perhaps even more risky, communicate value and charge a premium. While the temptation might be to let profitability restrictions dictate how the product is priced, it’s important to also take into account how consumers would react to a price or change in price.

Ad hoc research is often necessary in order to gauge how consumers might respond when launching new products, or when predicting what might happen to consumer interest when you increase price. While mark-ups and profit margins might help calculate theoretical profitability, it doesn’t say anything about whether consumers will continue to buy your product or choose to switch to a better priced competitor.

2. No other function is more in touch with the digital consumer

Building on the first point, more retail sales are moving to online, and the online environment is changing a lot faster than traditional brick and mortar. All decisions have to be made quicker, including how products are being priced. Digital and real-time conditions are driving real-time pricing moves.

Pricing decisions should be made by the people that observe and understand the digital consumer, and no one understands this consumer better than marketing. Access to big data, better and more intuitive analytics tools, and marketing’s ownership of other monitoring tools such as web traffic and social media means that marketing is able to constantly tap into the experiences of consumers.

3. Pricing connects to profit

Finally, marketing becomes a team of heroes, as taking control of pricing will turn marketing into a profit center. All the other P’s require risks and often fail to yield high returns. Optimised pricing can make a tremendous positive impact, especially when you’re in a highly competitive market. Big data analysis has become the backbone of contemporary pricing over the last five years.

That said, modeling prices based on historic data alone is not sufficient. Customer opinions still matter, and these can be obtained through any number of means, such as customer panels, surveys and even mobile phone apps. Combining traditional and contemporary pricing methods will yield insights that represent the best of both worlds.

It is of course important to tap into the expertise of all the functions in a company, and it is important to do the back-end calculations to ensure that products are profitable at the price at which they’re being sold. There is a solid case to be made for having marketing take the lead in order to drive a pricing strategy that puts consumers first in order to drive an overall cohesive strategy.

Oskar Toerneld is vice president, pricing and portfolio solutions, and Robin de Rooij is director, Asia Pacific, at Skim

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