By now, we’re all aware of the slash-your-prices scenario many companies take as a given these days: Your customers demand more and have online access to product comparisons from multiple sellers; you face global competition from rivals that have labor-cost advantages; and the financial crisis has accelerated the commoditization of more and more markets.
The solution? Cut your prices to gain volume and scale.
That definitely works for a few companies. But the reality is a very few — think Wal-Mart or Costco or Southwest Airlines. In fact, the very success of these business models makes it difficult for their competitors to duplicate — think Kmart or Sears, or any number of bankrupt budget airlines.
This article is for everybody else: those who choose not to compete on the basis of cost and low price. This article is for companies that can and should compete on the basis of performance, for which their customers willingly pay higher prices.
By competing on performance instead of price, you shift the battle to where your company’s strengths lie — in the ability to deliver unique benefits. So-called performance pricers are adept at three core activities: identifying where they can do a superior job of meeting customers’ needs and preferences; shaping their products and their business to dominate these segments; and managing cost and price in those areas to maximize profits.
Questions to Ask Yourself
- Does your company continuously focus on improving its products and services in ways that are important to customers and that allow you to raise prices and increase profits?
- Do you communicate regularly with customers to find out how you can improve your offerings, and to make sure they’re aware of any unique value you provide?
- Do your salespeople speak to the right decision makers and others who care about these value benefits in the customer’s organization?
- Does your company involve every department in discussions about product development and pricing strategy in order to maximize efficiency, quality and profits?
- Does your company consider pricing when it’s still developing a new service or product instead of when the product or service is introduced to the market?
If you answered no to any of these questions, your company is probably not doing enough to maximize profits in line with products and services that customers want and are willing to pay more for. And
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Certainly not all companies choose to compete on price. Some companies like Walmart have highly sophisticated logistical systems, inventory software, distribution, etc. and can make that model profitable. Others, like Apple for example, choose to sell “premium” products at a high markup over competitors.
Mike,
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