| |
| |
|
Marketing Information |
|
|
|
How to Win a Price War
Any economics student can tell you that price is a matter of supply and demand. The market will bear a certain price point and settle into equilibrium. This is not very helpful when trying to determine the price for a new product. Price is a very confusing area of marketing for many people. The reason is probably because price is one of the most misused and abused marketing tools. Traditionally, there are three ways to set the price for a product: ? Competitive Parity- Charging the same price or average price of the competition ? Standard Markup- Always adding the same percentage markup to the cost of products (i.e., cost plus 50%) ? Zero-Based Pricing- Receiving a small margin per item with a high volume of sales The problem with all three of these methods is they do not take into account the customer's perceived value of the product. Let's assume you are going to sell hats. The hats cost you $10 to make so you decide to sell them for $15. What if the people buying your hats only think they are worth $5? You are in big trouble. You cannot afford to sell hats for less than they cost you to make, but if that is the perceived value to your customers you will not sell any at $15. On the other hand, what if customers love your hats and would actually be willing to pay $20 per hat? You are cheating yourself out of $5 per hat. So how do you know what people will pay? Do the research before going to market. Either hire a market research firm, or do it yourself if you are on a budget. If people are willing to pay less than your cost to produce the hats, you will be avoiding disaster by knowing this information ahead of time. If people are willing to pay more than your perception of a fair price, you can be even more successful than you imagined. Price Wars Your price must be based on the perceived value to the customer. Price is a double-edged sword, and many companies find themselves falling into the trap of competing on price. Price is NOT a competitive advantage by definition because it can be copied easily and immediately by the competition. Price wars with the competition hurt everyone. Customers will be happy at first because they will get better deals, but be disappointed in the long term when prices go back up or their favorite company goes out of business. Price wars destroy the perceived value of the product in the marketplace. Even if your company wins the price war by undercutting the competition, customers will feel cheated when prices return to normal levels. I went to McDonald's to get my 39-cent hamburger the other day, and to my dismay what had been 39 cents the previous six months is now all of a sudden 79 cents. I felt cheated, but if they had not been 39 cents the week before when I bought them, I would not have felt that paying 79 cents was a big deal. Like millions and millions of other people, I have been going to McDonald's since I was a child. A few years ago they panicked and jumped into the price wars with their competition. This was a mistake. By creating their own "value menu," they started looking like everyone else. There is now nothing special about going there because they are just like their copycat competition. I just heard on the radio that McDonald's is closing almost 200 locations. It does not sound like the low price strategy is working. Low price is not a valid competitive advantage, yet companies spend millions of dollars saying they are the low price leaders. Low price has no distinguishing characteristic about it, particularly when everyone is saying the same thing. Companies are also telling their customers to shop based on price. Therefore, if their competition has a lower price, they should go to them. Let me repeat, companies are paying for advertising that tells their customers not to be loyal, but to shop based on low price! Besides encouraging a price war and creating disloyalty, this violates Marketing Key 5: Building Relationships. By telling people that the lowest price is the best criterion for choosing a product, companies are discouraging customer loyalty based on reputation or quality of service. This practice is so prevalent that it is no wonder many people are confused about the proper place of price in a marketing plan. The good news is that after reading this, you now know better than your competition. How to Win a Price War The answer to how to win a price war is to not get into one in the first place. If you find yourself in this situation, find a competitive advantage aside from price to promote then differentiate yourself and focus your marketing promotions on the advantage instead of price. Michael Daehn is the founder of marketingenious consulting and author of the book The Seven Keys to Marketing Genius: The Complete Guide to Increasing Your Marketing IQ available at http://www.sevenkeysmarketing.com and http://www.borders.com. Visit his website at http://www.marketingenious.com
MORE RESOURCES:
Marketing - Google News |
|
|
|
RELATED ARTICLES
Matrix Web Sites - Scam or NOT? While I am not talking about the movie "Matrix", you may be wondering like many others if Matrix Web Sites are Legal!Before answering this, you may know that there are some wonderful deals offered on the net, that will make you want to jump at it. Keep your shirt on. Increase Your Sales By Following-Up The difference between a successful business and one that just gets by is that the business that is just getting by thinks that the marketing is over when the sale has been made.One of the main reasons customers leave, change suppliers, or stop buying is because of apathy on the part of the company. An Internet Marketing Strategy that Works You can't put up a beautiful (or any) web site and hope that people will just arrive. You have to let them know, IN EVERY POSSIBLE WAY, that your web site is there. Web Site Marketing: 10 Little Known Upsell Strategies That Will Magnify Your Profits What is Upselling?It means pre-selling any additional features of your products and services even before your customers make a purchase.For example, let's say you're selling a computer with a 15" monitor for $600. 5 Ways to Give Your Web Site a Big-Company Look and Feel We all DO judge a book by its cover, and the same saying goes for Web sites. I've seen many entrepreneurs offer great information on their Web pages, but compromise their image dramatically with a few amateur mistakes that can be VERY unforgiving. Are Keywords Destroying the Flow of Your SEO Copy? With all the shuffling that's been seen in the search engine world within the last year, the issue of obvious optimizing has become a hot button. The current line of thinking is that most engines (especially Google) are on the lookout for sites that purposely make an effort to optimize their pages in order to get high rankings. Importance of Endorsements And How To Use Them Customer endorsements are an inexpensive and easy sales tool, particularly for someone just starting out. Here are some tips on how to get them and use them: Send follow-up letters. How to Critique Your Own Yellow Page Ad Forget what you know about your business Your goal is to see your Yellow Page display advertisement the way a directory user sees it. You can't act like you know anything about your enterprise that isn't there, on the page. Loyalty Cards Systems - Beware, Some Should Be Avoided Recently, I discussed a loyalty card system with a vendor who was selling quite a number of his systems to restaurants. I was shocked to discover the lack of detailed information that this vendor catered for, and the opportunities the system he provided squandered. Marketing Lessons From Apples iPod Apple Computer just announced that their earnings from the last quarter more than quadrupled mainly due to robust holiday sales of the iPod digital music player. More than 10 million iPods have been sold since it was introduced in 2001. Encouraging Contact The small time promoter has to work hard and on a shoestring to get an audience of a few hundred people to fill a venue. Flyers, word-of-mouth and media name checks are some of the tools promoters use to fill small venues or club nights. Target Your Market Your market is not everybody, as so many small businesses assume. It is the people/organizations who need, want, have the money--and the willingness--to pay for what you are offering. 6 Simple Ways to Determine Which Marketing Ideas Are Best for Your Business Did something catch your eye in a direct mailing this past week? Have you recently gone to a website and encountered something entirely new that caught your attention? Did a friend of yours try out a new marketing idea and generate a few thousand dollars of extra business overnight?As a small business owner, it's all too easy to get caught up in the hype of new marketing techniques that promise quick rewards for little cash. I'll even admit that we copywriters are trained to overcome your psychological objections to buying what we're selling so that you're ready to whip out your wallet right then and there. A Jack Of All Trades Is Often The Master of None You've heard variations of that saying your entire life. Consider: a marketer to all markets . Marketing Brain Trust Rest assured that no matter how smart you are, you do not know everything about marketing. You don't even know anything about marketing your product! You can't figure everything out yourself, or see all the angles, or provide every bit of critical thinking. Down To The Wire When you want to win and woo new clients with national publicity -- and don't have an enormous budget to distribute your message -- turn to the news wires. But first, be sure you're telling a story that's worth printing. Custom Lanyards - The Perfect Solution for Promotion, Branding, and Marketing Lanyards are fast becoming the new "must have" promotional item.Events organisers in the UK are realising the potential that custom printed lanyards can have in brand awareness. A Creative RIOT Relevant, original and impactful: that's what my friend Creative Director Jim Mountjoy says that effective creative must be. With apologies to Jim, I have my own acronym because I think ROI is only 75 percent of the way there. Marketing - Like a Game of Chess Have you started thinking about your Valentines Day Promotion yet?It may sound like a strange question on the day before Thanksgiving but it really isn't. When scheduling your promotions it is like a game of chess. The Surprise Inside! Think about all those Cracker Jacks you ate as a kid. What's your lasting memory? I'm guessing it's not the taste, but the surprise inside - that tiny package that contained a simple puzzle, brain teaser or temporary tattoo.
|
| home | site map |
| © 2006 |
