Riddle on Pricing

At its core, this is just instant noodles right? Why can this brand charge higher than normal brands? At $2.90?

(photo credit: noob cook recipes)

What is the most important aspect of pricing?

It boils down to value to customer. The price a customer is willing to pay, therefore the price a company can achieve, is always a reflection of the perceived value of the product or service in the customer’s eyes. For the spicy noodles, there are 3 steps: (a) create value – spiciness level above their competitors (b) communicate value – create viral videos and social marketing c) retain value – ensure the product delivers what is expected in terms of taste and value perceived. It is more of an experience that people are paying, as opposed to the product. Super good fight, I also noticed 7-11 stocks this product separately from other instant noodles, shows deeper differentiation “superiority”.

The second fact is the “best seller” label. It creates desirability and scarcity at the same time. People are afraid of losing out on the experience, and it overrides the emotional pain of parting with their money and getting over the threshold price limits for what is an acceptable price for instant noodles.

There is a funny phenomenon occurs where we use the price as an indicator of the product’s quality. A lower price can prompt a consumer to forgo a purchase, because the price raises concerns about the quality. Many customers act according to the motto “you get what you pay for” and moved away from low-priced items. On the other hand, the simple idea “higher price=high quality” becomes true too. A smart pricing company knows nothing is coincidental, everything is planned for a reason. To gain healthy market share and earn good profits.

For some products, they have super deep inelasticity. Many companies worry about losing volume when they raise prices. Little did they know, raising prices reinforces the notion that – indeed – their products carry significant value.

For an evergreen company that is looking to establish themselves, it is almost always foolish to start pricing your products at the lower end to simply gain market share. That is called bad market share. People will perceive it as a lower-end product. If your product is really good, charge higher, you will still gain a natural market share. There is some good in pricing your products well to demonstrate value and allow you to gain high profits. This is why Evian (just water, but elevated to differentiation), iPhone (at one time, Apple had the highest profit margin among mobile manufacturers), and certain products will never never discount their products by a large amount because, over time, the branding and perception of those products will drop in a big way.

I think Apple made a mistake by releasing iPhone SE. Many people feel proud to own an iPhone because it is somehow exclusive or ‘cool’. But when everyone soon will own 1 because of lower price entry points, the perceived value will drop. In the book “Tipping Point”, this action killed skater shoe brand Airwalk.

UPDATE on 8 May 2018 (look at how far this company went!):