Sony’s CEO, Phil Molyneux, announced a move to common pricing beginning April 1, 2012. What is common pricing? More importantly, what is the impetus for this move?
Common pricing sets a limit on the discounting that retailers can do by establishing a minimum retail price for your offerings. The purpose is to prevent erosion of your brand image due to heavy discounts as retailers duke it out for market share. The next question is “Will it work for Sony?”
Moving to common pricing alone won’t do the job. Fortunately, Mr. Molyneux recognizes that fact and is embarking on a campaign designed to better communicate the value that Sony provides. It’s the quality and effectiveness of this communication that will drive the success of its common pricing efforts.
As Mr. Molyneux astutely notes, when you go into a retail store and see all of the various brands of TVs side by side they all look alike. The differentiation exists in the TV’s capabilities and the compatibility of the peripherals that go with that TV. It’s this differentiation that Mr. Molyneux intends to communicate.
Another factor that will work to Sony’s advantage in using common pricing is Mr. Molyneux’s plan to eliminate some of its offerings. Psychologists studying buyer behavior have found that the more choices a customer has the more difficult it is for them to make a decision. Often the result is “No sale” as buyers walk away from the dizzying array of alternatives.
Eliminating offerings, especially low-priced alternatives, can enhance the brand image and reverse an all-too-common mistake that companies make when going after market share – cannibalizing their premium offerings. One of the often-unanticipated effects of creating a lower-priced alternative is that existing customers opt for the lower-priced alternative costing the company sales revenues and profit margins. I don’t know that Sony has previously fallen into that trap, but the possibility always exists.
Given Mr. Molyneux’s multi-faceted approach to altering Sony’s strategy, I’d say that the odds of his common pricing program being successful is very high.