If you have been following our blog series on developing a pricing strategy for your business, hopefully, you now have a good picture of your ideal customer and your competition. The next step is to consider the positioning of your product or service.
“Positioning defines where your product (item or service) stands in relation to others offering similar products and services in the marketplace as well as the mind of the consumer.” https://economictimes.indiatimes.com/definition/positioning
Positioning is designed to create an image of your business and your products and services in the minds of potential and existing customers. It is fundamental to setting your prices because it communicates the value and relevance of your products and services to the marketplace.
“Value” and “price” are often used interchangeably. However, they do not mean the same thing.
Warren Buffett has a beautiful quote: “Price is What You Pay. Value is What You Get.”
Value comes from the benefits the user gets from a product or service.
For example, I was at the airport on my way overseas for a business trip when I discovered I did not have the power supply for my laptop. Of course, the “price” is what I had to pay to get a replacement, but its “value” was much more significant because of the considerable inconvenience I would have suffered if I could not use my laptop.
Value can vary from customer to customer and is subjective as the end-user is the only person who can decide whether something is valuable for them.
On the other hand, price is the amount someone actually pays for a product. Price can be anything. It does not necessarily indicate something tangible about the product or the cost to produce it. Many high-priced products cost virtually nothing to make.
Consider the old saying, “one person’s trash is another person’s treasure.” So, for example, a farmer in a third-world country who has never owned a computer would see no value in your state-of-the-art software package.
Here is the bottom line when it comes to your pricing strategy: Determine the value first. THEN set your prices.
As we have said, value is in the eye of the beholder. That is why it is vital to identify and flesh out all you can about your target customer.
Then comes the task of positioning your products and services to establish the value to your target customer and set it apart from your competition.
Value is a tool you can use to make it easier to position a product in a marketplace, especially if competing products are very similar and where product advantage is limited.
Adding things of value to a package does not always cost an arm or a leg.
Can you find a “soft dollar option” you can include as a bonus? By “soft dollar option”, I mean something that costs very little but has a high perceived value in your customer’s mind.
For example, we once did a Christmas promotion where we offered a teddy bear with the purchase instead of a price discount. As a result, the campaign was very profitable because sales volume increased substantially and the teddy bear cost us very little.
What small extras can you do that add perceived value for your customers? For example, suppose it is easier to do business with you and the buying experience for your customer is faster, cheaper, more reliable, and fun. In that case, this will give you an advantage over your competition.
Positioning emphasizes your brand’s market value and uniqueness and should be what comes to your customers’ minds when they think of you and your products or services.
When someone buys your product, what are they really buying? Is it peace of mind, time-saving, reduced frustration, or maybe cost-saving?
In the end, this usually is why they buy!
The way you position your business should highlight the value you offer and what makes you and your products unique and more suitable for your target market than your competitors.
To be effective, your positioning should be:
Here are some tagline examples from large brands that demonstrate how they communicate their positioning to their target market. Similarly, you should create yours with the specific meaning and value to your target market.
Having looked at the foundation pieces, next week, in part 4 of the series, we will look at bringing it all together to determine the pricing strategy for your business.
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