Connor BrookeSony’s CEO, Phil Molyneux, announced a move to common pricing beginning April 1, 2012. What is common pricing? More importantly, what is the impetus for this move?
Common pricing sets a limit on the discounting that retailers can do by establishing a minimum retail price for your offerings. The purpose is to prevent erosion of your brand image due to heavy discounts as retailers duke it out for market share. The next question is “Will it work for Sony?”
Moving to common pricing alone won’t do the job. Fortunately, Mr. Molyneux recognizes that fact and is embarking on a campaign designed to better communicate the value that Sony provides. It’s the quality and effectiveness of this communication that will drive the success of its common pricing efforts.
As Mr. Molyneux astutely notes, when you go into a retail store and see all of the various brands of TVs side by side they all look alike. The differentiation exists in the TV’s capabilities and the compatibility of the peripherals that go with that TV. It’s this differentiation that Mr. Molyneux intends to communicate.
Another factor that will work to Sony’s advantage in using common pricing is Mr. Molyneux’s plan to eliminate some of its offerings. Psychologists studying buyer behavior have found that the more choices a customer has the more difficult it is for them to make a decision. Often the result is “No sale” as buyers walk away from the dizzying array of alternatives.
Eliminating offerings, especially low-priced alternatives, can enhance the brand image and reverse an all-too-common mistake that companies make when going after market share – cannibalizing their premium offerings. One of the often-unanticipated effects of creating a lower-priced alternative is that existing customers opt for the lower-priced alternative costing the company sales revenues and profit margins. I don’t know that Sony has previously fallen into that trap, but the possibility always exists.
Given Mr. Molyneux’s multi-faceted approach to altering Sony’s strategy, I’d say that the odds of his common pricing program being successful is very high.
This article was written for Business 2 Community by Connor Brooke.
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Very interesting. Common pricing works well for products that do not have direct substitutes. The differentiators must be strong enough for the consumer to perceive it as a product in its own class. The Mac Book Pro is the perfect example. It’s a computer, it does “computer things”, so there are practical substitutes in the market. However, from the consumers’ perspective, a Mac Book Pro is significantly different than any other Windows-based computer. And that’s the main reason why the Apple model works. I’ve seen similar attempts in my career at BlackLocus. Some successful, some not. I am eager to see how Sony will make its TVs different enough so it becomes its own class. If they don’t, I’ll probably just buy the Panasonic for less.
Yoko you’re right, there have to be strong differentiators. The differentiators are how buyers decide what’s important to them and what isn’t. Those differentiators will fall into the broad categories of image, innovation or time savings. The product could help the buyer present an image that reflects their value system, be innovative in ways that allow them to enjoy the latest, greatest technology or save them time, now or in the future.
Usually pricing is designed to communicate the image, innovation or time saving value of the product or service. Common pricing, however, is designed for one purpose only – to avoid having the brand’s image devalued through distributor network discounting. Hopefully a quick analysis of your comment will reveal the difference.
What your comment tells me is that unless Sony is able to WOW you technologically, you’re going to go with the lowest-priced alternative. You don’t view the Sony brand as one that, by virtue of its name, enhances or reflects your self-image. Nor do you see much difference in reliability of the competing offerings (Panasonic vs. Sony) which would be a major factor in time savings. If my assessment is anywhere near accurate, then, with regard to TVs, you’d be an innovation buyer. Absent any technological advantages, you’re opting for the lowest price. These are the factors that appear to drive your TV buying decision.
Those factors don’t, however, influence the discounts that retailers are offering. Retailers actions are being driven by competitors’ pricing, not the value the customer perceives. Limiting the retailer’s ability to discount forces them to compete on the basis of customer experience rather than price. At the same time it prevents retailers from diminishing the value of the Sony brand in buyers’ eyes – at least in the eyes of those who attribute brand value to the Sony name.
Hopefully I’ve made a worthwhile distinction for all readers. Thank you for initiating the dialogue.