Game changers are marketing strategies and concepts that help transform the outcome for an organization… and pricing is by far the most polarizing strategy.
Pricing is an extremely tangible aspect for a prospect to consider; changing your sticker price means disrupting the status quo… this can produce amazing, or tragic consequences.
Temporary price discounts are not game changers. Tactics such as “Buy One, Get One Free” or “10% Off”, have their place for sure but they don’t create long-term benefits.
The primary component of a pricing strategy is how it impacts your position in the market compared to competitors or alternatives. One of the most compelling reasons to employ a new pricing strategy is to change the perception of your product and service benefits within the marketplace. I’ll share some specific strategies on pricing but first you’ll want to consider a few things:
- Know how your competitors price. Work to understand the pricing strategies of your competitors over time so you can evaluate and re-evaluate more accurately how your pricing measures up.
- Conduct a price elasticity study. It’s extremely important to understand the impact a price increase or decrease would have on your business. Create a few different models using historical sales information so you can see how a new strategy could have looked in reality.
- Test the strategy in a small market. Whether it’s a small geographic area, a pre-defined niche, or just one client – try it first before rolling it out in a larger scale. When you prepare a micro-environment by which to evaluate the results you’ll be better prepared to implement a system-wide change.
Now that you’ve done your homework, here are four (4) game changing price strategies:
- Find Efficiencies. Drop the Price. A basic principle of a capital market is to maximize value for the lowest price. Who doesn’t want more for less? Almost every disruption in a category affects the established pricing model that has existed. No company will ever regret finding new ways to maintain or improve quality while cutting costs. Wal-Mart leveraged their buying power and logistics systems to create the “Everyday Low Price”. Wal-Mart ate the competition for lunch; and now Costco is using this strategy to win big. Online travel sites made booking flights and hotel rooms more affordable by increasing competition and cutting out travel agents. Zara’s copycat fashion artists and speed of development made acquiring high fashion clothing more affordable.
- Jack the Value. Jack the Price. Most businesses would love to be the high value and high priced option; the profit margins are better and the social prestige is more desirable too. If you decide to be a premium player, ensure the value and quality of every facet of your business meets the premium expectations of the market you intend to sell to. Second Cup was one of the first coffee outlets to charge a premium for coffee. No one thought people would pay $1.80 for a cup of coffee in 1985. They did and it’s grown to over 350 locations around the world. But it needs to be worth it, it needs to be justifiable; no one pays for junk. The beans have to be the highest quality, roasted to perfection, served well, and meet the value needs of the coffee lover. Look at the industry now – you can easily pay $3.75 for a shot of espresso at a boutique café.
- Develop a New Position. Develop a New Brand. Some of our clients have established businesses that can’t risk repositioning but they know there’s room for a different cost option. In these cases, creating a separate brand is what fits the bill. Toyota created Lexus, Nissan created Infinity, and Honda created Acura—these are all luxury brands that target a premium market. There are usually very good economies of scale that can be made when a company makes this kind of change (using the same production facility or leveraging the same distributors and logistics channels).
- Go Direct. Connect with your Buyer. When it comes to products, the final price is greatly affected by the process of getting it into the hands of the buyers. There are usually distributors and retailers that each need to take a piece of the action; alternately a business may simply have a less efficient system in which to experiment with new products or prices. More than ever before businesses are selling directly to end-users. The Internet is, of course, the primary driver behind this change. They want to own the consumer and have the financial leeway to reward loyal consumers with sharper pricing and a better customer experience. The Gap is selling more clothing online directly to consumers. Specialty products and technology are tested and tried at traditional retailers and then being purchased online for a cheaper price.
There are other pricing strategies out there of course—each of them represents a viable game changer for an organization. How and when to adopt these strategies is the golden ticket every business would love to find. Take a moment this week to think about your current pricing strategy and make a few notes about ways you could change your financial outcome in a dramatic and exciting way.
Have a great day!
– Braden