What price can I demand for my product? If you want to find the optimum price for your product, there are certain things you need to know first. For example, what price is the customer expecting? A recent study by STAR demonstrates how limited customers’ awareness of automotive aftermarket pricing is and what to do with this information.
Aftermarket services have the reputation of being more expensive than they actually are. This is especially clear when one looks at replacing brake linings – one of the most common services in the aftermarket sector. Nearly two thirds of study participants (65.7%) estimated a price that is greater than the true cost.
Specifically, the average price for brake lining replacement was thought to be 54.3% higher than the actual price, a difference of EUR 104.22. Customers overestimated the prices at independent garages in particular: for example, the costs for brake lining replacement were guessed to be 74.3% higher.
However, not all customers share the same assumption: some 30% of those surveyed guessed a price that is lower than the actual service price. All in all, the participants’ pricing knowledge can be regarded as rather limited. Nearly half of survey participants (45.5%) specified a price that diverges more than 50% from the true price.
Strategically using information on price awareness
Customers’ relatively low price awareness has a direct impact on their demand patterns. In many cases, the actual price is less important than the price image – the price expected by the customer – since customers tend to make purchasing decisions based on their assumptions rather than hard facts, particularly where there is a lack of transparency in pricing structures on the market.
A price image that is higher than the actual price is unfavorable for the provider, but when customers’ pricing expectations are lower than the true cost it can also be risky for sellers. If your products are seen by customers as more expensive than they actually are, you can lose revenue from customers with lower willingness to pay. And on the other end of the spectrum, profit is squandered on customers with greater willingness to pay. Revenue, market shares and profit are below what they could be.
Actively shaping a price image
However, providers do not need to settle for this status quo. They can influence price images and skim the market using targeted measures. We recommend a three-step approach:
(1.) First, create greater transparency regarding the price image and willingness to pay in the market using analyses and surveys.
(2.) The correct pricing responds to customers’ willingness to pay and focuses on value drivers on the part of customers.
(3.) Differentiating your pricing communication according to customer segments helps assert prices on the market.
STAR COOPERATION can confirm the effectiveness of these pricing measures with a number of automotive aftermarket projects.