How resolute an organization is about obtaining top dollar for its products or services influences how effective its other efforts are in fending off commoditization. The more customers feel a firm's pricing structure is "soft," the more attention they will give towards obtaining the lowest price possible. This detracts attention from a company's attempts to highlight other product features, provide total solutions or establish a strong brand image.
In some industries it is common practice to publish prices that are never actually used. When I became director of marketing for a marine electronics manufacturer, I experienced firsthand the consequences that years of price discounting had with their biggest customer, West Marine. If wholesale list prices did not meet West Marine's margin requirements, my company immediately discounted to retain the business. Not only had it commoditized its own products, it had transferred price management to its customer!
Often it is the company's own sales force that perpetuates the idea of soft prices. How does a sales representative respond to a customer's request to "do better" with a quotation? Reducing an initial price quote without reason insinuates that the company's prices are always open to discussion.
Companies must also extend their price-firming efforts through the channel. Distributors can foster commoditization by selling product categories on price rather than attributes. The more you help distributors increase price rigidity on their end, the more you increase it on your end.
Marketing is often guilty of exasperating the situation by conducting sales promotions that offer a percentage off from the "regular price." Sales promotions should not be price-oriented.
Every effort should be made to maintain a concrete pricing structure. Even minor activities that suggest soft pricing act to dilute efforts to prevent what marketers fear most: commoditization.
Keith Gosselin is an associate professor of marketing, management and MIS at Mount St. Mary's College & Woodbury University as well as president of KKG Marketing Consultants, Granada Hills, Calif. He can be reached at [email protected]