As part of our ongoing KPIs series, we look at Price Analysis – balancing the customer’s desire for the best price against the differentiated value provided by a service provider.
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“61 percent of customers say they will pay a higher price if they can be assured that the product or service is of higher quality.”
Many business owners get caught up in trying to compete on price, but in the long run, this hurts everyone. Lower pricing means tighter margins, leading to cost-cutting and a lower-quality offering. Lower quality undermines the brand and removes any value perceived by the client.
On the other hand, while being sensitive to pricing, customers want a product or service that meets their needs and have demonstrated they are willing to pay for those needs. Therefore, businesses must shift their focus from being low-cost providers to offering a quality solution best suited to address the client’s unmet needs. This new focus requires we look at our clients differently –
Customer-Centric Focus – What do clients value beyond cost?
Our clients are unique in their needs, preferences, and requirements. Unfortunately, many new entrepreneurs believe they can “sell” to everyone. This mass-market approach solves a generic need but fails to capture the nuances clients perceive as “value.” The long-term impact of value pricing is it erodes the brand.
For example, BMW’s brand is built on “The Ultimate Driving Experience.” BMW customers are not shopping for the cheapest car in the market; they are buying a premium product (perceived or otherwise) for which they are willing to pay extra. Through branding, features, and customer service, BMW differentiates its brand from low-cost providers.
Value Over Price – Finding the right client mix.
Some clients are and always will be low-cost seekers. They are willing to sacrifice functionality for the price. And there is always a market for these types of buyers. But as business owners, we must consider whether these clients should be part of our client mix.
If they are not, we must reduce our focus on mass-market segments. Instead, we must target niche markets that provide the opportunity to offer differentiated solutions that meet the more specific needs of our clients. Clients who are willing to pay to get what they want or need.
Value Proposition – A differentiated solution
When we take the focus off pricing, we can concentrate on the value proposition.
- How your product solves the client’s needs (relevancy).
- Delivers specific benefits (quantified value).
- Separates your company from the competitive landscape (differentiation).
In developing your value proposition, we need to consider the following:
- Who is your target customer?
- What are their unmet needs?
- How does your solution uniquely meet these needs?
- What are the benefits to your client of working with you over the competition?
Customer-centric pricing strategies mean we must talk to our customers before selling. We need to understand what they want that is not being addressed in the market. We need to understand what they consider important in the buying decision (features, timing, quality, etc.) to offer a solution that addresses what truly matters to the client. This will allow us to offer a unique product or service that separates us from our competitors.
Ultimately, this allows us to create value the client is willing to pay.
Zumifi would welcome the opportunity to help you analyze your current pricing so that you can develop pricing strategies to support your future planning.