Pricing is secret, at least partially. Companies do not advertise their pricing strategies for two key reasons, they don’t want their competitors to know and they don’t want their customers to know. More accurately, firms want to manage what their competitors and customers know about their pricing.
Competition – You want your competitors to believe you have high prices. This may prevent them from pricing too aggressively to win business. For example, recall the blog on the press release where Hersheys announced their price increase. In that announcement they “told” their competitors it was time to raise prices in attempt to get the competitors to follow.
However, when companies are being aggressive relative to their competition they keep that as secretive as possible. When they give great prices to select customers, they don’t want their competition to know. When competitors know they are more likely to compete for that business which could drive prices even lower. Aggressive pricing is about taking market share which is easier when the competition is unaware.
Customers – Firms typically want customers to know their pricing is low, fair, and a great deal. They may advertise special sale prices to inform customers of a great deal. However, firms with great pricing strategies have levels of prices for different segments of customers. It is usually in the company’s best interest to not share the entire price list. Knowing that someone else is getting a better deal could keep a customer from purchasing.
How many times have you purchased something on-line and when you went to check out there was a box to enter a coupon code … but you didn’t have a coupon code. When I see that it makes me feel like someone else is getting a better price than me. Why are they special? Why can’t I have a discount?
A general rule of thumb is to not let customers who can’t have the best price know there is a better price available.
Is pricing secret? In a word, yes. Pricing strategy is kept secret because it has two opposing objectives:
- Convince competitors your prices are high
- Convince each customer his or her price is low
How do you do that if you’re transparent with your pricing strategy?