Keys to Stop Competing for Price

Identifying a segment that values the differentials of the product or service and charging a price aligned with the company's strategy are essential to avoid competing with the lowest prices in the market.

Friday, April 12, 2019

Ariel Baños, specialist in price management and founder of Fijaciondeprecios.com, explains how through the implementation of an appropriate strategy, it is possible to compete in a market where there are suppliers who charge derisory prices.

1. Identify a segment that values our differentials

It is almost impossible to reach all customers in the market profitably. Trying to become the best option for all, generates a confused positioning in the minds of our customers, and forces us to make pricing decisions that sacrifice a lot of profitability. For example, we resort to large discounts to tempt the most price-sensitive customers, while trying to maintain, at a high cost, high quality and a high level of service to seduce customers who do not buy for price.

We must choose those market segments that most value our differentials. If, for example, the main benefits of our proposal are speed of delivery, or flexibility to adapt to special needs, then we must identify who will be the customers most favored by these benefits.

Who are the customers most favored by the differentials of our proposal? By answering this question, we will identify the customer segments that we will be able to meet profitably.

2. Charging a price aligned with our strategy

By focusing on certain market segments, this takes the pressure off us to define prices that suit "everyone". The price we define has to be aligned with the message we are trying to convey to our target customers.

If we have a "Premium" proposal, the price should not leave the client in any doubt. A price higher than the market average is consistent with a promise of higher value.  Similarly, if our goal is to reach massive high-volume customer segments, then our price must be affordable, and generally below the market average.

Price is a basic element of positioning. We must not confuse our customers in our desire to generate more sales. If we have a proposal with big differentials, for a certain segment of customers, the price should never be low.

3. Communicate clearly our differentials

It is not easy for the client to spontaneously understand the value represented by our proposal. Let's think for example of a life insurance, an agricultural input, a technological solution or a professional advice, just to name some cases.

The company should not assume that its customers fully understand all the benefits of its proposal. Therefore, it is necessary to be proactive in communicating this higher value, explaining clearly:

-How it will make their lives easier or make them feel better.
-How it will allow them to reduce costs or generate greater income.
-How it will help them reduce risks or feel more safe.

These actions can positively influence perceived value and reduce the need for discounts and promotions.

It should not be assumed that the customer spontaneously recognizes the value of the company's products and services. Any proposal is expensive for those who do not understand the value they are receiving.

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"If we overcome the mental barrier of commoditization, identifying and communicating those added values going beyond our basic proposal, we will have the opportunity to take our profitability to another level."

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Charging tariffs consistent with the positioning of the brand and communicating its differentials with respect to the competition, is essential to stop competing for price and redirect the strategy according to the value of the product.

Ariel Baños, specialist in price management and founder of Fijaciondeprecios.com, explains three strategies to avoid competing only for the price factor, because in these struggles there are no winners and only attract the least loyal customers.

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Applying segmentation techniques, making comparisons with the prices of other products, and applying discounts to customers who have eco-friendly practices are some of the strategies that can help maximize the sales profitability.

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The right choice of the marketing system and the partners who will sell the product is key to compete profitably with other options with lower prices.

Ariel Baños, price management specialist and founder of Fijaciondeprecicios.com, explains how through proper marketing, it is possible to compete against the prices of companies manufacturing their products on a large scale and at lower cost, such as those made in China.

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