The Price May Not Be Right: Tricky Pricing That Frustrates Everyone

Marketing Viewpoint by Ruth Winett

How about everyday low prices?

Once the total cost of a product or service was clear. Now, vendors have several new ways to pad or distort prices. Fluctuating prices influence behavior, but tricky pricing can push a prospect to a competitor or kill B2B or B2C sales altogether.

Here are recent examples of price manipulation:

Elevated food prices during and after the Pandemic: Food prices at nine “dominant firms” exceeded costs by 7% in the first three quarters of 2023,“ compared with a peak of 5.6% over costs in 2015, according to an FTC report: Feeding America in a Time of Crisis. Because of high food prices, low income customers are replacing fresh, more nutritious foods with foods they can stretch. Food companies are responding with value bundles and other discounts, “Food companies aim to win back ‘value buyers,’ “ MWDN, 4/10/24

Shrinkflation: selling smaller quantities of goods without lowering the price, for example chocolate products, tuna fish, and other foods.

Surge Pricing: A type of dynamic [fluid] pricing: When demand for Uber or Lyft rides increases on weekend nights and holidays, prices increase dramatically. Surge pricing is common in delivery services and in the airline, hotel, and utility industries.

Digital Pricing: Wendy’s is adopting digital menu boards so they can easily change their menus and prices throughout the day. However, Wendy’s denies that this is surge pricing.

Subscriptions: Magazines and software companies often request renewals months before subscriptions end. This practice effectively provides the companies with a loan from customers who each year are double paying for two or three months.

Price promotions: Everyone loves a good deal, but when Macy’s and Lands’ End frequently offer price discounts, customers are conditioned to wait for steeper discounts, next month or next week.

Junk Fees: President Biden and the FTC have taken steps to eliminate “hidden fees” and “bogus” or “unexplained fees” that attempt to mask price increases. Travelers who book flights on third-party websites are often surprised by unannounced surcharges for “anciliary” services, according to FlyersRights.org.

Bundling: Who can resist two-for-one or second item at 50% off? Savvy shoppers wait for these and similar deals. However, buying more than you need is not a bargain.

Value pricing: Charging more for more value only works if the vendor provides additional benefits that the customer needs and appreciates. Travelers desperate to attend their son’s destination wedding will pay a $60 premium to expedite a US passport renewal.

Pricing that fluctuates with changes in supply and demand: When OPEC cuts back on oil production, gas prices immediately rise at the pump. But, decreases in the supply of essential goods encourages hoarding (e.g., toilet paper) or switching (chicory for coffee in wartime).

How about everyday low prices?

Businesses need to realize a profit, but they should be upfront about the total prices of their offerings. When promotions are offered too often, savvy customers wait for deeper discounts. When prices are too high, buyers cut back or seek substitutes. Lower prices every day would increase customer loyalty and keep customers and vendors from taking advantage of each other. However, “shoppers [must] understand the rules that merchants have created. Problems arise when there’s an ‘informational imbalance,’ especially” related to food, according to Erin Witte, of the Consumer Confederation of America, as quoted in the New York Times and Boston Globe.

Sources:

*“FTC: Grocers practiced pandemic price gouging,” P. Davison, The MetroWest Daily News, 3/24/24.

https://www.timeout.com/newyork/news/congestion-pricing-in-nyc-everything-you-need-to-know-including-start-date-exemptions-and-map-030124

https://www.today.com/food/restaurants/wendys-surge-pricing-rcna140601

https://hbswk.hbs.edu/item/navigating-the-mood-of-customers-weary-of-price-hikes

“Will targeted pricing change buying?” L.DePillis, New York Times and Boston Globe, 4/7/24.

“True cost of flying can blindside travelers,” Z. Wichter, MetroWest Daily News, 4/10/24.

“Food companies aim to win back ‘value buyers,’” J. DiNapoli, MetroWest Daily News, 4/10/24.

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