• by Sarah Mahoney  @mahoney_sarah, December 5, 2006

Ford Motor Co. has a big investment these days in marketing its "clear pricing" strategy. So does Vonage. And last week, Circuit City announced it was broadening its Price Guarantee on all TVs--promising consumers a refund of 125 percent if they can find their TV cheaper somewhere else.

While promising low, fair and fixed prices certainly isn't a new marketing proposition--Saturn made it famous years ago with its no-haggle car deals--it does seem to be on the upswing.

Fueled by a growing consumer cynicism, greater ability to use the Internet to compare thousands of prices, and, ironically, with a certain amount of customer fatigue at so many choices, more companies are embracing these simplified pricing strategies.

But marketing experts say that while using clear pricing can have a big impact, it's a complicated message, and can also whip up an atmosphere of ill will between brands and consumers: A message that's meant to say "Here's a justifiable and reasonable price" can come across in ads as "Hey, we won't rip you off this time!"

For items like cars, when the buying process is so adversarial, clear pricing can build traffic in showrooms, said Frank Luby, a partner with Simon-Kucher, a marketing consulting firm in Boston that specializes in pricing, and whose client list includes DaimlerChrysler, Microsoft and Johnson & Johnson.

"Even though consumers know they can lower a price through negotiation and rebates, who wants to? There's no need to shake your head and roll your eyes--clear pricing removes the whole theatrical aspect of negotiation from the equation," he said. "For the manufacturer, the benefits are a more pleasant conversation and a shorter route to the sale," he said, "and the consumer is spared that moment of having to wonder, 'Why are they throwing $5,000 at me?' "

But the downside is that such pricing can tie the hands of the marketer, in terms of building profits. And offering consumers choices. "Price is compensation for the value a product delivers," Luby said. "If your price is clear, in other words, take-it-or-leave-it, does that imply that the value is also fixed? If it does, you've gone from having two levers to drive the sale to zero levers," said Luby, who is also co-author of Manage for Profit, Not for Market Share: A Guide to Greater Profits in Highly Contested Markets. "And consumers know, that when it comes to buying a car, that just isn't true--different options and models do affect price."

Another risk is that it gives wary consumers plenty of encouragement to think, 'Wait--does that mean I overpaid for my last Ford?' and switch brands. That cynicism seems to be especially true in consumer electronics, where consumers have learned that they need to fend off extended-warranty offers, and that rebate offers are the industry's code for prices that are too high.

Luby expects the clear pricing trend to be on a short cycle. "Once everyone has clear pricing, then it becomes unclear," he said. "Price is one way to differentiate yourself, and the communication around price is another way -- but it might not be the best way."