Tag Archives: competitive advantage

3 Golden Rules of Pricing for Value

For any business setting the price of your products is one of the hardest decisions that you have to make (along with picking a brand name, choosing the logo colour, deciding on your range…!) There are a few different approaches that you can take, but the most important thing you need to do is build value. This post will discuss the role of value in pricing and show you the 3 golden rules for building your price on a value proposition.

What is Value?

Value is a perception. It’s the reason why a well cut, good fitting little black dress for $150 can be as savvy a purchase as buying 3 tanks for $20. The price paid is considerably different, but so is the expectation of quality, enjoyment and longevity. Value is the combination of all our feelings towards the item we are purchasing. To set the price, we need to understand the value of our product to our consumer.

Many years ago I was the category manager for a premium cosmetics and perfume company. When it came to setting the price on skin care products that were perceived to rewind the aging process, we set the price by analysing what the consumer would pay, based on what it was worth to them – the value they saw in the product. The product cost was around $10, yet the consumer valued it enough to be willing to pay well over ten times that amount.

In our post “How to Measure Success” we looked at how to analyse your gross profit and your wholesale margin, which are both valid ways to set your retail price. But some products are worth far more than they cost to produce, be it because of desired design, quality workmanship or inherent benefits, and this is where developing your price model around value is most beneficial.

3pricing for value profit margin Golden Rules of Pricing for Value

1.       Understand Value-Based Pricing

When you set price using a value based model your objective is to determine the level of satisfaction a customer derives from your product and what price they are prepared to pay for it. How valuable is the solution your product brings to their life? How long do they perceive it will last? How important are the attributes to them?

Defining value includes analysing tangible and intangible attributes – that is what we can and cannot touch. The price of a Mercedes-Benz is set by what the brand believes the consumer will pay. The value is based on what they can touch – leather seats, alloy wheels, superior styling; but also what they can’t – associations of prestige, confidence and luxury.

There is no formula for value-based pricing, as each product will have its own value. You may find it helpful to do a competitive review to see how others are pricing similar offers and also survey your target market to understand what your offer means to them.

2.       Create a Value Perception

Creating a value perception involves positioning your product or service in the market so that it is desirable. The more consumers want your product the more they will be willing to pay. How to do this depends very much on the type of product or service and who the target customer.

Generally speaking you can create positive value perceptions by paying attention to:

  • The presentation of your brand elements including your logo, brand name and website / store front
  • Building social media networks to have large numbers of engaged and active followers
  • Educating your target on the benefits your product can bring (remembering both the tangible and intangible)
  • Demonstrating brand advocacy through customer reviews and testimonials

 

3.       Maintaining your Value Proposition

When you use value-based pricing, your approach hinges on your target market buying into your offer and seeing the value in it. As it comes time to promote your product, the strategy you choose is critical. Thinking back to Mercedes-Benz, how often do you see an ad for Mercedes-Benz:

“Mercedes Benz A-Class, was $90,000, now $50,000. For three days only!”

A product that is marketed on its value needs to maintain that value and it can easily be tarnished. If you can sell your product for half the price you were charging, your consumer will start to question its true cost, and the value they see in it may decline.

Value adding strategies are the best way to maintain value in your product while creating new reasons to buy. The most well-known value add strategy is the free gift. Offering a free gift with purchase does not devalue the original product in any way, you may be directing some profit into funding the gift instead of using some profit to discount the gift.

Free gifts can also be used to drive multi unit purchases e.g. Spend $52 dollars to get your free gift, setting the spend qualifier above your key products.

With the rise of online stores, another strong value add offer is Free Postage on a required spend. Firstly, we suggest you have a flat postage rate in place e.g $6.95 Flat Fee Postage, that way you have created a value for the postage; then set a minimum spend to receive the postage free e.g. Free Postage on orders over $100. This will encourage multi unit purchases, delivering you more profit per transaction, helping you fund the free postage profitability.

Following the 3 golden rules of pricing for value has the potential to deliver you more profit than pricing to make a margin requirement. What is your product? Can you price for value? As part of our mini marketing plan, we analyse your competitors pricing models and give you recommendations on how you should price within the market. For more information visit our product page.

Until next time, V is for Value and I hope you found it valuable!

Mary-Anne


Ideas and Innovation: Brainstorming for Small Business

Coming upon “I” in the A-Z of Marketing, I have to say, I was lacking inspiration (oh hang on there’s an “I” word); I didn’t need just any “I” word, I needed an “I” word that had something to do with Marketing and Small Business. Then I had an idea! Actually, the idea came to me during a swim, which is where I find a lot of my ideas start, so I decided to dedicate this post to Ideas.

The ways in which ideas can be generated and the techniques of pushing ideas past the barriers of what we know until we reach innovation are both paramount in keeping your small business at the top of its game.

Where do Ideas Come From?

“An idea is nothing more nor less than a new combination of old elements.”  James Webb Young

It always seems that there are some people who are just “full of great ideas” and others who are not. Ideas are our subconscious processing inputs and coming up with solutions, so it’s no surprise the more we sit and try to think of a great idea, the further and further it gets from our reach.

We all had an idea when we started our business, an idea of what we could offer a group of people that would be different in some way to the other options available. Had we sat down and thought, “I want to start a business, I just need a good idea” it is more than likely that we would have come up with nothing. But perhaps days later, when out on a walk, or having a shower, the idea would pop into our mind, as if out of nowhere.

So there lies the power of the subconscious. I read an article years ago and the crux of it was, to come up with a great idea, pose a question to yourself, then go and do something completely unrelated and with any luck your subconscious will do the rest.

But what do we do when the ideas won’t flow?

How to Brainstorm

Brainstorming is a creativity process where a group tries to find a solution for a specific problem by gathering a list of ideas spontaneously contributed by its members. It is a technique for finding alternatives to a problem. It is usually undertaken in a group setting, as the dynamic allows each new idea to generate other ideas, summed up best by the phrase “bouncing ideas off each other”.

To allow ideas to flow, some say it is best to follow the “rules” of brainstorming:

  • All ideas should be initially accepted without judgment or criticism. Negativity is a road block for idea generation.
  • Ideas can be imaginative and impossible. Take a “no holds barred” approach, it is easier to later refine ideas than to make them more unique.
  • Don’t limit the number of ideas generated; keep the flow until there are no ideas left. The more ideas that are generated the more likely the right idea will have been unearthed.
  • Allow each idea to be combined, improved and expanded.

I found brainstorming works best in a group environment when you use a large writing area. Draw a big circle in the middle of the space and write your problem, each idea then branches off, ideas can be joined together and new
ideas can branch off existing ideas. This is also known as a mind map (especially useful if you only have yourself to brainstorm with)

What is Innovation?

Like milk and baby’s nappies, new ideas don’t stay fresh for long. In our post on Getting Competitive with your Competitors we talked about the need to adjust your strategy annually to stay ahead of the competition.

The ideas we have for our products and services when we start out may not be the best combination for ongoing success 12 months later. This can be due to competition, the consumer evolving or saturation in the market. In marketing we know nothing sells like new! Having worked as a Brand Manager for two international cosmetic brands, the power of “new” always amazed me. Mascara sales would peak at +50% when we introduced a new variant; perfume sales would peak at +25% when we added a limited edition to a current product. “New” gets people excited and it gives them a reason to buy again.

Innovation is the process of becoming better or more effective; it is striving to stay ahead, to be first amongst competitors, to deliver solutions to needs consumers may not have even realised. Innovative products create demand and instead of fighting to take a bigger slice of the existing pie, they expand the pie in size and then claim a bigger slice than was originally available.

Brainstorming for new ideas often leads to innovation; it is open minded, unrestricted problem solving approaches like this that allow innovative ideas to come through. To innovate we ask:

  • Is there a better way of doing this?
  • Could this product do more than what it does now?
  • What are other industries doing, is there learning’s we can use from these?
  • What is the ultimate version of our product or service?

In the Jack Collins book Innovate or Die, he says simply to ask:

  • What can be added?
  • What can be taken away?
  • What can be adapted?

And renowned management writer Peter Drucker gave us three conditions that must be met for an innovation to be successful:

  • Innovation is work. It requires knowledge, ingenuity, creativity, etc. Plus, innovators rarely work in more than one area, be it finance, healthcare, retail or whatever. This work requires diligence, perseverance and commitment.
  • To succeed, innovators must build on their own strengths. They must look at opportunities over a wide range, then ask which of the opportunities fits me, fits this company. There must be a temperamental fit with the practitioner and a link to business strategy.
  • Innovation is an effect in economy and society, a change in the behaviour of customers, of teachers, of farmers, of doctors, of people in general. Or, it is a change in a process, in how people work and produce something. Innovation must always be close to the market, focused on the market, and market driven.

The benefit of bringing innovation into your business is that it gives you an edge. You will not have to compete on price and you will not be concerned when new businesses emerge mimicking your offer.

We understand how hard it can be as a small business owner to brainstorm and even more so when your business is just you, but the opportunity to bounce ideas off others is invaluable. Make sure you take advantage of networking both online and offline to help you draw inspiration, develop new ideas and innovate to keep your business moving.

We also offer an email support program we call the Business Bounceboard, which allows for unlimited email support and advice. It’s a great way to get input on new ideas and be pointed in the right direction when you get stuck.

Until next week I is for Ideas and Innovation and hopefully for adding a little inspiration.

Mary-Anne

www.wiseupmarketing.com.au


Get Competitive with your Competitors

Competitors are the concern of all businesses, no matter their size. Too often we wait until sales have dropped unexpectedly or enquires are down until we look at what the competition are doing. In this post we will discuss how to get competitive with your competitors, to ensure you stay at the front of the pack and connect with your target market.

How to Identify your Competitors

When we ask our clients who they see as their competitors, they always have a list of 3 or 4 businesses offering the same or similar product or service. When we do our competitive analysis as part of our Mini Marketing plan, we generally find quite a few more.

Why the difference? As a business owner, when you look for competitors you tend to think as a business owner. “My business is selling flowers online. What other major online florists are there?” When we identify competitors for a client, we
think like a consumer “My mum’s birthday is coming up, what could I get delivered to her?” All of a sudden we find fruit baskets, chocolate hampers and gift vouchers as competitors for our online florist.

We see most businesses as having two types of competition:

Direct Competitors

These are the companies offering the same or similar product or service. These are our most obvious competitors, but not always our biggest. E.g. Gilette vs Schick Razor, Cornflakes vs Weet Bix, Channel 7 vs Channel 10 etc

Indirect Competitors

These are the substitutes for our type of product or service. These are not always as obvious and are where we need to think like our consumer and understand the options available to them. E.g. Razors vs Wax Strips, Cereal vs Toast, TV vs
watching a DVD etc

So to identify your competitors, consider the substitute categories too and you will have a more complete idea of who your competitors are.

Update your Market Analysis

Many businesses start off with a Business Plan or a Marketing Plan or some points in a notebook on how they could turn their hobby into an income stream. As part of this planning process, formally or not, we tend to do a Market Analysis.

We ask ourselves:

  • Where does my offer sit in the market?
  • Is there demand for it?
  • Are there competitors? Are they doing a good job?
  • Is the market saturated with offers or is it fairly open for a new entrant?
  • Is that market a good size or is it small and niche?
  • What are consumers willing to pay?
  • What is my competitive advantage?

We do a fairly thorough job in attempting to answer those questions. We launch our business and we rarely reassess. When we ask our clients who they see as their competition, they stop and think, they even do
some fresh research and overwhelmingly we hear “Wow! Now that I’m looking I’ve noticed a few more have popped up”.

We recommend a scheduled maintenance program (just like servicing your car)

Competitor Analysis Schedule

Don’t Get Mad, Get Even

Just like when you launched and took share from other players, new businesses are launching all the time and a few are after your piece of the pie, these competitors want to take your consumers and make them their own.

If you follow our scheduled maintenance program above, we are sure your top 5 list of competitors will be constantly changing and we are sure you will find new entrants that look and sound surprisingly (and frustratingly)
like they are trying to be you!

It’s a compliment really; they are competing with you because you are on their top 5 list. Your business is being perceived as successful, credible and desirable and so you are a threat.

The best way to get even is to be even better at what you do. With our scheduled maintenance program, every month you are going to review your top 5 competitors and as part of that you should look at:

  • What part/s of their offer is stronger than yours?
  • What part/s of their offer is weaker than yours?
  • How are they promoting?
  • How many touch point’s they have? E.g. Website, Storefront, Blog, Twitter, Facebook Page, Newsletter
  • How you can stay up to date with their touch points E.g. Subscribe, Like, Follow, Visit

Then take that information and learn from it. Learn how to put your own spin on what you see as working well for the competition. For example, if you are an online florist and a competitor has just put up a section on what flower for what occasion, think how you could implement a similar page, but in a way that it reflects your brand and its communication style.

Competing with your competitors requires you to invest time in monitoring the competition regularly. At a minimum, aim to do the annual review – you’ll be glad you did! We offer a thorough competitive review a part of our Mini Marketing Plan package and sometimes it really works to have an outsider look in with a fresh perspective. Get in touch if you’d like to know more.

Until next week C is for Competition and also for creativity.


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