Why you should be using benefit segmentation as part of your pricing strategy

Background

A key part of a pricing strategy is determining how to differentiate your brand. “What?”, you may ask. Isn’t brand differentiation normally accommodated in the communication strategy arena? This is true. However, it is also very strongly linked to a pricing strategy. This is because brands that are able to differentiate effectively are generally able to compete on a basis other than price.

Opportunities for brand differentiation

How then do we differentiate a brand? There are several paths to get there, but one powerful enabler comes from benefit segmentation. Traditionally, brands have used various forms of segmentation such as demographics (age, income, gender, et cetera), psychographics, geography, and other approaches.

Benefit segmentation and pricing strategy

Benefit segmentation typically involves finding benefits that are relevant to the part of the market, and which potential customers will pay for. Benefit segmentation can typically cut across other segmentation bases such as demographics, psychographics, or geography. Benefit segmentation is also useful in that it is easier to communicate.

The basic idea is that differentiating a brand along the lines of benefits lessens competing alternatives, helps make the brand more relevant to prospective customers, and in doing so allows a pricing strategy that is not necessarily based on low prices, but rather on a premium pricing basis.

Benefit segmentation can typically be expressed at three levels, namely functional benefits, emotional benefits, and self-expressive benefits.

Functional benefits

These benefits are typically intrinsic to the product or service being offered. Examples may include:

  • being the most economical
  • safest in its class.
  • most convenient in terms of location.
  • open after hours.
  • externally certified processes to offer high levels of quality.
  • designed by a world-famous designer.
  • a proprietary technology.
  • top rated advisers to give you the best advice.

You will notice that all of these benefits are relatively easy to communicate. They can be used to differentiate a brand. Ultimately, they can assist you to charge a higher price if your competitors cannot offer these qualities while you can.

Emotional benefits

Emotional benefits are more complex. They are typically derived from functional benefits or directly from assumptions made from a brand’s communication strategy. Emotional benefits are rather useful in that they are more difficult to replicate should a competitor wish to copy your communication strategy.

Typically, emotional benefits may also be based on several other benefits and can provide a positive halo around your brand that lets you charge more for your products or services. For instance, a functional benefit offering top-rated advisers to give you the best advice would lead to an emotional benefit such as peace of mind. The bottom line is that it provides a vehicle to let you charge more for your products or services.

Self-expressive benefits

Self-expressive benefits are generally the highest level of benefit based differentiation. They may be derived from functional benefits or emotional benefits but ultimately are an enabler that customers of a brand will use to say something about themselves. This is a very powerful form of benefit and is typically quite difficult for competitors to replicate.

It can also rely on forms of brand building that focus on causes. This could leverage digital communication channels that do not necessarily promote the product or service directly, but offer timely and relatively lost cost forms of brand-building and pricing power for you. Generally, brands offering a desirable self-expressive benefit have the potential to charge premium pricing.

After having seen the variety of options open to you, it may be worth rethinking how you associate features with benefits for your products and brands to have greater pricing power and profitability.

About the author

Alan Ohannessian started WisdomInc in 1999.

He has broad-based experience in how marketing strategy and analytics are practically integrated with other strategy disciplines for more effective outcomes.

Prior to starting WisdomInc, he started a Customer Relationship Management consultancy within the Ogilvy Group in the mid-1990s and worked within the Ogilvy Group over a 5-year period.

He has advised product and service organizations for more than 70 global and local B2C and B2B brands since 1995.

As a specialist across several disciplines, he is able to provide an integrated view of a solution when providing strategic insights. Areas of specialty have included Marketing Strategy, Brand Strategy, Communications Strategy, Brand Experience Management, and Pricing Strategy.

He has taught Marketing Strategy to MBA students at Wits Business School, on a part-time basis, through the “Marketing in a Connected World” course.

He holds a Master’s degree in Distribution Channel Strategy from the University of the Witwatersrand.

He has also completed a postgraduate dissertation in the area of cost-competitive mass-customization manufacturing strategies at Wits (where he taught Marketing Strategy, Consumer Behaviour, Marketing Research, and Retail Marketing over a 2-year period from 1993 to 1994.)

For further information, go to https://www.wisdominc.com or connect with Alan at https://www.linkedin.com/in/alanohannessian/