Most companies can’t compete on price – so why try to?
When financial crisis strikes – most business owners cut their prices to gain volume and scale.
Cutting prices definitely works for a few companies, but the reality is not many – think Walmart, Costco or Southwest Airlines. The success of these companies and their business models makes it very difficult to duplicate. Competitors like Kmart and Sears struggle to compete.
Companies should compete on performance instead of price.
Focus on where your companies strengths lie. Provide superior service to meet your customers needs, communicate with your customers regularly and make sure your sales people speak to the right decision makers to convey your companies value.
Identify Value Opportunities
Even if your product is a commodity, have you looked at ways it can be improved? Perhaps the design or packaging of your product can be improved to lower costs. Can you make the product more efficient for the customer?
Align Price and Value
Set higher price in line with what the customer is willing to pay. Key – is to make sure to document and quantify the precise nature and benefits your product offers. Try to figure out the tangible value that is offered to your customer.
Beware of Poor pricing mistakes
- Average pricing seems fair – UPS used one price for all customers. But when FedEx Corp. entered the market, one reason for it’s success was its variable pricing – taking into consideration times of delivery (early morning vs. afternoon) and weight)
- Cost-Based Pricing is Easier to Explain
- Everyone Else Prices it that Way – be smart about being different. Relying on pricing of the market means you run the risk that your prices are the legacy of obsolete circumstances.
- Nothing We Do Deserves a Premium Price
- The Customer “Tells” Us the Price – What customer wants to pay a higher price? Most customers do seek value – it’s your job to frame and deliver the value proposition and the pricing.
You shouldn’t be afraid, even in a tough economy, to raise your prices. If you can convey the value of your product, the customers should follow.
*Article Resource – Wall Street Journal 5.24.2010
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