Product innovation through price will have a profound impact on your market position. Price position is often determined by making a choice between just two strategies. According to former Proctor and Gamble CEO A.G. Lafley in his book “Playing to Win” those two choices are cost or differentiation of your product. The problem with being the low cost leader is that there is only one that can hold that position, while on the other hand a product differentiation strategy has more room to play and access to a more diverse customer base. Being the low cost leader comes from an intense focus on internal systems that can reduce costs and increase efficiencies during the production of your specific product. However, there is a risk of losing touch with your customer because your primary focus is on driving down costs. If you are trying to serve a diverse customer base with your very specific low cost product it is very hard to meet all of their different needs. However, if you have a very broad and stable customer base it might be to your advantage to focus on cost reduction rather than offer additional features (McDonald’s hamburgers certainly started that way). After all, if your customer is just looking for the lowest cost it is usually easy to find and that is an advantage. Like I mentioned before it is sometimes difficult to determine whether a higher cost product truly offers better performance. Another down side of lowest price is that it comes with the baggage of “cheap” and “you get what you pay for,” so some buyers will steer clear of the lowest price in hopes that they are getting a little higher quality with the higher price. But, if you choose to price your product higher so that you can differentiate, there are usually numerous ways to do this that are not being duplicated by others. Product innovators that charge higher prices because they differentiate their products have the distinct advantage when it comes to customer loyalty because they strive to continuously improve and customize their products to satisfy their customers. Whereas, low prices limit customization.
The dilemma for buyers still is knowing whether the higher priced product is really higher value for their needs, or if it is perceived higher value but not real value because of the advertising and branding work the company does. Regardless of the conundrum that the buyer may be in when shopping for a specific product with numerous options in pricing and product features it is hopefully becoming clearer that product pricing for a business is an enormous opportunity for innovation and should be carefully considered as a key part of your overall strategy.
The dilemma for buyers still is knowing whether the higher priced product is really higher value for their needs, or if it is perceived higher value but not real value because of the advertising and branding work the company does. Regardless of the conundrum that the buyer may be in when shopping for a specific product with numerous options in pricing and product features it is hopefully becoming clearer that product pricing for a business is an enormous opportunity for innovation and should be carefully considered as a key part of your overall strategy.
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