More Marketing 102
Copyright 2014 by Virgo Publishing.
By: Harley Rolfe
Posted on: 04/01/2002



 

Last month, I ventured into the never-neverland of marketing viewpoints and tried to show how perception of a product--not the actual physical offering--is the arena of marketers. I showed how media can create a label or symbol that has value independent of any product. I also established that a product is the means to a customer's end, and effective selling focuses on those user goals. That presupposes you know what those goals are, otherwise you have no basis on which to found an appeal.

Determining Value

If I said you must talk the customer's language to communicate with him, you would probably agree. If I said you had to think like the customer to influence him, you would probably agree. If I said you should price your services consistent with the prospect's view of their value, you would probably agree. After all, if the prospect's notion of value is below your price, he won't buy. Now you know I'm leading you down the garden path, so you are likely to be hesitant about agreeing to much more. But at least we can agree you must know something about value to properly price your services.

So let's move to a simple example of value determination. Imagine a hot summer's day. Dad has been mowing the lawn. He's hot and thirsty and takes a break. There on the kitchen table, his thoughtful wife has set out five identical glasses of ice water. He exclaims, "I'd give a million dollars for one of those!" He gratefully chugs the first, thanks his wife, and more slowly drinks the second. He feels much better. He walks away from the rest. But he wasn't alone in mowing the lawn. Right afterward, his son comes in hot and sweaty. He notices the remaining three glasses. Like his dad, he eagerly drinks the first, then leisurely consumes the next. He thanks his mom and walks away leaving the last glass untouched.

Following our dictum of pricing according to value, how would you proceed to price the glasses of water? Is this example realistic or surprising? It characterizes the dilemma of pricing. The value of a product to any one customer is not easily knowable in any quantitative way, yet we agree value is the only basis on which to effectively set prices.

Further, value bounces all over--even for the same customer. It is the customer's situation that determines value. The cost of the product has nothing to do with it. And the value will vary as the customer's situation changes. In our example above, four of the five identical glasses of water had different values at different times to the dad and the son. To each, the first glass had great value, the second had some value and the third, well, it had a common value--zero.

The critical item here is the father and son would have been willing to pay varying sums depending on their situation. What's a poor marketer to do? Well, sometimes he just chickens out and uses cost to determine pricing because it is knowable and convenient. Or he checks out the competition and follows its lead. Neither is a very valid method.

Real-Life Application

Let's apply this to the self-storage world. An owner believes there may be a demand for a package of self-storage units for a prosperous family. A wife has been on her husband's case, imploring him to get his big toys out of the garage. Also, she has some lovely heirlooms she doesn't want sharing space with the ATVs and snowmobiles. She wants her own unit. And the kids? They have their stuff, too, and think it would be neat to have their own unit.

OK, Mr. Operator, how do you price the package? You say, "That's easy--just add them up!" But the husband is paying the bills, and each of those units is worth progressively less to him. He won't pay the same for each. The units may be identical, but they're not worth the same. Now you're thinking: "But those units all cost me the same, and I can't charge different rates for the same unit! Besides, my accounting software doesn't work that way, and it wouldn't be fair to other tenants paying regular price."

Now take a look at airlines. On any given flight, there are between 10 and 15 seat prices in play. Hotels are the same way. On any given night, there will be a wide range of prices being charged. They understand if they want to sell multiple seats or rooms, they must recognize the difference in value successive units have to the same buyer. This may sound like basic discounting, and with large purchases, you'd be right--bargaining power does come into play. But when you're talking about families or small groups, each successive unit is actually worth less. If you want to sell those additional units, you must acknowledge this fact in your pricing.

Is this sort of thing really needed for the self-storage industry? I only report the hows and whys of marketing practices. Why anyone would believe this industry is exempt from the factors and forces that shape every other competitive market, I don't know.

Trial and Error?

There is one caveat. We have used analogies to illustrate the principles, and the illustrations may seem simplistic--like the glasses of ice water. I'm trying to establish the concept. It's a little like looking at a football-team playbook vs. watching the execution of plays in a game. On paper, the plays look clear and simple; but in real time, they look like a mess of guys running in all directions. It takes a skilled eye to detect the order. The same is true with marketing strategy. We are trying to set up the marketing playbook. This is not guessing or random trial and error. There is good reason to believe this approach will work.

Harley Rolfe is a semi-retired marketing specialist whose career includes executive-level marketing positions with General Electric and AT&T. He also owned lodging and office facilities for more than 20 years. Mr. Rolfe holds a bachelor's degree in economics from Wabash College and a master's degree in business administration from the University of Indiana. He can be reached at his home in Nampa, Idaho, at 208.463.9039. Further information can also be found in Mr. Rolfe's book, Hard-Nosed Marketing for Self-Storage.