Negotiable Price or Fixed Price ?

Price is real but its perception is subjective. If marketers understand how customers interpret the price; they will keep their prices more firm and less negotiable.

In no other city in India can you rely on public taxi service as you can in Mumbai. You get a taxi within minutes; on most streets. You dont ask the cabbie how much he will charge before getting into it. You do not need to haggle when you get down - you only need see the meter. You don’t feel ripped off. May be that is why the market for cab-travel is more developed in Mumbai. 

When the customers feel that the pricing in a market is fair and well-managed, customers tend to come oftener to such markets. When you want to develop a product category, it helps if the price is standardised.

Many markets remain undeveloped precisely due to this reason. Take the example of toy market. I was the CEO of a toy company called Funskool once; and I remember discussing pricing practices with my Marketing Head Raghavan Shrinivasan and my Sales Head Ashok Samant. The prices fluctuate so much between different stores for the same toy that this uncertainty drives the customers away from the market and they land up buying some other gift! The funny thing is that a toy customer generally feels she is charged unreasonably even if a dealer has given her a genuinely low price. No wonder the Indian toy market has remained underdeveloped.

Is a fixed price better than a price open for negotiation? I say, yes. In the TV market, a few years ago, almost no one quoted the best price upfront. They got “quotations” from different dealers and played one dealer against another. In those days, the dealers did not display their real rates, but only official ones, on the models. When the customer came in, they “sized up” the customer and accordingly played the game. Soon, the dealers realised that when the customer walked out to get another quote, she may never came back. So, many dealers have now changed their tactics and are giving their “best quote” upfront. Slowly, these new pricing tactics are sinking into the collective psyche of the customers and they are responding positively. The Francis Kanoi research showed that people are visiting less number of shops now compared to before - confidence in the product category is increasing.

In fact, laments from the sales people notwithstanding, I firmly believe that when the category is growing, one should generally not play the price card. When the category is growing, the product, it’s utility, and benefit to the customer must become the Centre of marketing attention. That is why in Eureka Forbes, where I headed marketing, we never ever gave any price discount. Any negotiability in price at the selling point distracts from the value of the product - and the sales conversation centres around the price - instead of the value.

For Direct marketing firms it is important to keep the prices steady because many of them sell "concept products" which have not been accepted by the masses yet. Such products can be sold only if the sales dialogue focuses on the product and its value and not on price. 

Even if you are selling through a channel / network price clarity is equally important. There are dozens of examples among the FMCG crowd where giving more discounts to the trade only increases the price undercutting. This reduces the confidence of the dealers who start wondering whether the company or the wholesaler is the right source to buy from because the wholesaler’s price is better than the company’s prices. This reduces the hold of the sales force over the market. The sale of slow moving products suffers. The display and merchandising suffers. The relationship suffers.

I have noticed that firms which are trying to become more brand-oriented (as distinct from sales-oriented), find it difficult to tell their sales departments that they should reduce the schemes and discounts. It is not only a question of money but also of customer confidence. The more the price fluctuation, less the brand confidence.

What do you think? Comments, agreements, brickbats, views are welcome.