Pricing is tricky. The choice for your price position not only impacts your market share but it also determines your overall business model, the segments you will serve, and activities you will operationalize in order to acquire the right buyers. Pricing acts a powerful signal particularly in the following three types of purchase contexts:
Price-wars: when buyers shop for established products and choose from many alternatives
Entry points: when buyers test their willingness to pay for acquiring a solution for the first time
Lower-end segments: acquiring a simplified or “good enough” version of an offering that was originally designed for buyers with more sophisticated needs.
Companies choose price-cutting for any and all of the cases above but you cannot sustain or grow your business if you cannot maintain your profits. If you are choosing to go to market with a low-price or the best value position, then you should consider the following factors to optimize your margins.
1. Design for cost advantages
Successful low-price companies focus on becoming the low-price option from the get-go. They integrate pricing into their product development and management functions and they develop only the products that will meet their target price point with a profitable enough cost structure. They create the practice of building a solution to a price point rather than pricing a solution after it’s built.
2. Solve for “Good Enough” at viable quality and performance
Serving lower end segments or designing entry-point solutions require understanding how the needs of those specific buyers differ from the early-adopters. If you’re building a “good enough” offering, identify just those features and attributes that your buyers can’t live without and prevent over-engineering. Also, keep in mind that simplification often means localization. If your lower-end segments are dispersed geographically (i.e. emerging economies) it’s imperative that your insights are also localized and construct specific. In most cases, subtracting value alone is not enough to attract lower-end segments or first-time buyers when your offering doesn’t meet their needs or different use-cases.
3. Identify the growth segments
If you choose to hold a lower-price position, you must identify the segments that are the largest or those in the growth stages. It’s very difficult to main viable growth in a lower-price position without the economies of scale.
4. Align your operational model
Holding a low-price position must be pervasive across all your operations. Make your profit targets transparent across all critical business workflows, and make meeting them everybody’s job. You cannot maintain sufficient profits if your operational models are not aligned with your profit targets or when everybody in your team is not striving for hitting those goals.
5. Meet the customer expectations
Low prices are not a substitute for unmet customer expectations, especially if customer retention is critical to your revenue structure as it is in the case of a subscription model. You must internalize your buyer personas adequately, and your solution must deliver on its promise consistently.
6. Make strategic choices wisely
Focus distinctly on those features and attributes for which customers are willing to pay, and deliver them well. Separate the must-haves from nice-to-haves and prevent over-delivering. Keep in mind also that you may be able to find opportunities for customer delight in your packaging, delivery, or time-to-value.
7. Quantify the value of the benefits the product or solution delivers
A successful value proposition is one that justifies the true value of a solution's benefits. Whereas many marketers treat value formulation as a creative task, the act of acquiring a solution itself is an exchange of value from providers to the buyers. Buyers want to know the value they are receiving in exchange for the price they are paying. Therefore, you must quantify and communicate the value that is being transformed into the benefit that is delivered by your offering.
8. Emphasize the value above price
Focusing on the price of an offer heightens buyers’ perceptiveness towards a “loss” frame of mind as in diminishing purchasing power followed by a spend. Whereas focusing on the value of the benefits that a buyer receives shifts their perceptiveness towards a gain frame of mind.
9. Prime for differentiation
If your offering is a low-priced substitute to many other alternatives then your value proposition must also be formulated in relative terms. Be deliberate about explaining how your solution meets your buyers’ specific needs in simplified and differentiated ways that remove the complexity of accessing, acquiring, or using a solution.
10. Market to elevate the buyers’ perceived value to or above the price point
Even when the solution benefits are well quantified, no buyers are willing to pay for solutions that they perceive to be priced higher than the value they will receive. Therefore, it is essential that your product and marketing teams correctly identify your buyers’ perceived value for each of the features and attributes, and streamline their activities to elevate the buyers’ value perception.
Don’t underestimate the power of pricing. A value-based approach to market positioning can help you price your offering to maintain the profit margins that will keep you competitive – even when addressing the highly price-sensitive buyers. If you don’t know where to start, we’re here to help; schedule a free pricing assessment with us today and begin your pricing innovation.
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