Customer oriented pricing for profit maximization – a paradox?

“Pricing is actually a pretty simple and straightforward thing. Customers will literally not pay a penny more than the true value of the product” R. JOHNSON (Apple/J.C. Penny).”

For BMW pricing plays a key role in its Aftersales Strategy. The reason is easy – if you make it right you can improve your profit situation dramatically. Beyond that today’s customers are not passive price takers. They do not simply refuse incomprehensible prices. They rather reject the firms’ fundamental approach to make money and do not hesitate to abandon companies that cross the line. While emphasizing on a customer oriented pricing approach BMW’s price management is therefore focusing on targets like customer satisfaction, loyalty and price image and strives to develop a price position which customers perceive as fair. Fair prices are achieved if the price perception is concordant with the price expectation and if the price-performance ratio is within acceptable limits.

The BMW price management process consists of the following main steps:

Understanding the customer needs and expectations is the first step. We conduct thorough market researches to find the needs of our customers. This approach is guided by the knowledge about our customers, their special requirements, how those customers will likely react to various pricing schemes and what their perceptions of price fairness are. Based on that, we create customer segments which will be addressed with specific pricing guidelines.

Of course we are not alone in the marketplace – therefore we are looking into the competitive environment in each major market around the globe. The combination of customer oriented pricing and in depth analysis of the individual market competition ensures a country specific optimal price point to generate the profit optimum for the BMW Group. This process is supported by sophisticated systems which allow us to run specific price simulations that calculate the market individual effects of any price changes in terms of volume and revenue.

But once you got the right price the job is not done. We have to ensure that this price is also perceived as a true value of the product by our customers. This is an intense communication job. Therefore we put a premium on the communication with our partners. We have created a strict process across our wholesale and retail organization to make sure that all prices are transferred correctly and that our worldwide partners are able to explain our pricing logic.

When prices are perceived as fair, customers often buy more and are more willing to pay a premium. Successful price management for us means that prices are transparent, that they are aligned with the individual situation of the customers and that they are understood as an appreciation of our customers.

Stephan Reiff

Stephan Reiff
VP Aftersales Strategy, Planning and Steering
BMW Group