MISTAKE #58: You think you have a pricing problem, but you really have a value problem
I regularly disagree with clients on how they approach their pricing strategy. And almost every time, it is because I think they going with a price that is too high.
But don’t assume that I push the solution of simply lowering the price. That is a quick and blunt tool to use that may not be addressing the underlying issue.
I know that lowering prices does more than shrink profit margins. It can cascade into eroding brand equities and chiseling away at funding important activities to attract more shoppers. Lowering prices can be a temporary solution that, if it works well, is likely to encourage competitive items to follow suit. This can quickly lead to a zero-sum game where prices have been lowered across the category with nothing to show for it except lower profit margins.
THE MISDIAGNOSIS
Pricing issues are often the symptom of a poor value proposition.
Poorly designed shopper research might report back the conclusion that “shoppers would buy the product if only it was priced lower.” In reality, few of these shoppers are probably able to accurately recall the price within 5%.
Better-designed research might be more likely to reveal at least as many shoppers saying “I’d be willing to buy the product at this price if I was given a better reason to.”
More companies could maintain their current pricing if they were willing to do a better job delivering actual or perceived value.
Look at every product in your category that currently sells for a higher price as evidence that this is true. People are willing to pay more...just not more for your product.
In categories I’ve worked on, this is further reinforced by the fact that clients are usually quick to say “there is nothing special about those more expensive products. They're not that different than my product.”
But those products are different. Those products have figured out how to offer value that commands that higher price. It might just not be what is physically in the box or pouch or tube that is so different. Instead, these products might be capitalizing on brand recognition or a reputation of quality or magnetic packaging or engaging advertising, or compelling content.
They’ve done the work to earn the privilege of selling at a higher price. And it often isn’t because the product costs that much more to produce or is objectively better.
WHEN THE TREATMENT IS WORSE THAN THE DISEASE
Unfortunately, companies often need to do a much better job with the value they offer. The task involves more than just tweaking a claim on the package or updating a label.
The fact that a company is falling short on the value they deliver is most likely an indicator that they really don’t understand what value their shoppers are looking for.
An investment of time and energy and money will need to be made. The company will probably need to dive deeper than it has in the past to uncover what value its product can offer.
That deep dive will reveal that it isn’t just about how to find a new way to be different. It is finding the real reason that translates interest into purchase. It is the difference between adding more features and selling better benefits.
Your product contains features but provides benefits. People look at features but open up their wallets to buy the benefits. Far greater value exists in the benefits.
“Different is fact. Better is opinion.”
If you’ve been fighting pressure to lower your pricing because it will eliminate critical funding of sales-driving activities, but don't see any other options, let us help.
We’ll take a closer look at your condition. And hopefully be able to suggest ways you can start increasing value before you have to drop your price.