The other day I read an article in the local press in which one-screen, traditional cinemas were deploring the loss of 40% of their viewers due to the opening of a new multiplex 
Tucked at the end was the sentence “Small investors are hopeful that viewers will return to their cinemas, due to the price sensitivity of Romanians.” Underlying this assumption is an erroneous view of price sensitivity that I cannot refrain from commenting upon.
Assuming that human beings are rational, we can make the statement that price differences, all other things being equal, will have an influence on purchase. Thus if store A and store B are right next to each other, and store A sells at price a<b, while store B sells at price b, the customers will prefer store A.
But ceteris paribus seldom holds true. Billa and Cora are the same distance from my home, and Cora has better prices, but I still shop at Billa. The product selection is closer to what I want, I prefer their store layout, and I once bought stuff at Cora and their bags broke. This trivial example shows that there are other factors that influence choice:
Place – not only in the sense of location, but also physical space, layout etc.
Product – in the sense of the product itself, but also in terms of diversity, alternatives
Image – the image that the product and company project in the mind of the customer, an image that the company can manipulate through Promotion
In other words, the other 3 Ps of marketing.
Finally, there is the 5th P: the Person. My assumption of rational behavior was only for argument’s sake, but all marketers know that people behave both rationally and emotionally. The associations they make with a product or brand, their habits, the value they derive from its use, all influence their decision to purchase or use a service.
Living in the price sensitivity bubble blinds a company to all these influences. And it’s a surefire road to losing out in front of its competitors.
So burst the bubble. Price alone will not reconquer customers you’ve already lost, especially when your price was lower already when you lost them.
Posted under Random opinion
This post was written by Corina on November 16, 2008
