In the last post, I focused on the first of 5 P’s that make up the fundamentals of marketing strategy, beginning with product. My main question is how the combination of the slow economy and the emergence of social media have impacted these fundamental marketing principles. This post deals with the concept of developing effective pricing strategies.
Economics in Marketing
Pricing strategies are often boiled down to the basic economics of supply and demand (Ex: high demand with low supply results in higher prices). But in the current economic climate, demand is low for many products and services which means that companies are controlling supply in an attempt to maintain their prices and profit margins.
Most companies are also testing the effect of lower prices to see if they will result in increased demand. One example of this is the effect that the Cash for Clunkers program had on the volume of auto sales. Federal subsidies were substantial enough to generate a surge of auto sales, and the surge quickly subsided when the federal program ended. Clearly, with lower corporate profits and less disposable income among consumers the economy is driving pricing strategies.
Social Media and Pricing Strategies
But how can social media play a role in pricing? The answer is in fundamental economics. Social media is one option that companies can tap into to increase demand for products or services. One great example of this is Kobi BBQ. Kobi serves Korean BBQ to go out of trucks that travel around the Los Angeles metro area. The company sends out tweets to notify followers about where their trucks will be located and at which times. The result is often a line of customers that begins to form up to an hour before the truck arrives! In some cases, the company takes a hiatus for a day and remains quiet, which essentially creates an ongoing series of tweets and retweets from followers who are eagerly anticipating the next series of locations. Kobi is masterful at utilizing social media to create excitement and demand for its food, which allows them to maintain healthy pricing and profit margins.
Unfortunately, most companies are too willing to lower prices in response to the slow economy or a more intense competitive environment rather than explore ways in which they can increase demand for their products and services. The latter strategy is more difficult, but if successful it is far more sustainable and profitable than constantly attempting to be the lower priced option.
Not all marketing firms are willing to or capable of developing strategies that increase demand. That’s one of the unique attributes of ddm that sets us apart.
Next up in the 5 P’s: Place
Mike
