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Pricing

Value/ Price Positioning

Where do you fit into the Value/ Price positioning model?

Buyers think in terms of value for money; what they get for what they pay. As a seller, you must have a value position for your product or service. Each of these six positions has a particular market.

  1. More for More. Specializing in offering the most upscale version and charging a high price. Often the price exceeds that actual increment of quality, and prestige is a factor. Examples are Rolls Royce, Cuban cigars, and Nordstrom.
  2. More for the Same. Companies have been able to attack a “more for more” product or service by claiming comparable quality and performance but priced much lower. These are usually high end products with superior product attributes but is priced on par with the competition. Lexus positions its cars at the same price point as Mercedes, but offers a lot more features. Dell positioned its Xeon based servers as value for money when compared to Sun’s UltraSparc server.
  3. The Same for Less. This position is possible if a firm can profitably deliver ¬†it’s products or services which are on par with that of premium products from the competition at a price which is lower than that of the premium priced product. To be successful in this space, you need to create a strong brand differentiation first. This is the differentiation strategy for E-commerce sites on the Internet and discount stores. Examples are Costco, Target, Amazon,and private label food products.
  4. Less for Much Less. Some people complain that a product or service provides more than they require but they still have to pay the higher price. A “less for much less” position overcomes this objection. An example is Southwest Airlines, the most profitable airline, charges much less by not serving food, not assigining seats and not using travel agents.
  5. More for Less. The winning value proposition would be to offer prospects and customers “more for less”. This is the attraction of highly successful businesses like Wal-Mart.
  6. Less for More. This is a pricing position that is doomed to failure.

Most companies compete in the value for money positions of “more for the same” or “the same for less”. Where does your product or service fit?

 

 

Where Does Price Fit Into The Purchase Decision?

Are you busy playing the pricing game? Is your low price the main differentiator between you and your competitors?

Re-think this strategy. It’s more a route to business suicide than a strategy. Consumers facing a purchase decision go through a consistent process.

  1. Problem recognition
  2. Information Search
  3. Evaluation and Selection of Alternatives
  4. Decision Implementation
  5. Post-purchase Evaluation

OK. there are some purchases wherein a step or two are skipped. A low impact purchase like a hamburger is based many times on how hungry are you and where is the nearest place to eat.

While there are many studies and sources of information on the Consumer Information Processing Model shown above, our discussion is really based on where does price fall in the hierarchy of making a purchase decision?

If, for instance, you where contemplating the purchase of a new car, what are some of the things you’d consider from step three (as shown above)?

  • Brand loyalty
  • Warranty
  • Dealer attitude
  • Serviceability (does the intended purchase actually fill a need)
  • Proximity (how far are you willing to drive to get it)
  • Peer pressure (or peer review)
  • Knowledgable Sales and Service staff
  • Available inventory (do they have the make/ model/ color that you want)
  • Price

If price was your ONLY consideration… you’re telling me that NOTHING else matters? There are always ¬†additional considerations other than price. I’ve never seen a study where price ranked higher than third on the list of important considerations when someone is making something other than a low-impact purchase decision.

This decision making model can be applied to many different types of purchases. What are some of the considerations your clients look at when making the decision to do business with you? Become your own customer. Grab a sheet of paper and make a list. If you were buying your product or service from yourself – what elements would you consider in the Evaluation and Selection of Alternatives step?

Where did price fall on that list? If price is the main or worse – only – differentiator between you and your competition, then perhaps you should go sell hamburgers.

 

 

 

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