How To Bid Farewell To Price War?

What is strategic pricing?

Strategic pricing is achieved through a series of coordinated actions to achieve a common goal: Profitable pricing.

When an enterprise decides to change its pricing method, it is often because customers refuse to accept the fixed price.

In some cases, such claims are reasonable, but more often than not, the problem lies not in the price itself, but in other components of the price strategy.

For example, a new customer is not clear about how the product distinguishes itself from other products and how to add value. Naturally, it will form a view that price is too high.

In this case, the correct response of enterprises is not to reduce prices, but to educate consumers, help them really understand the product, and give a reasonable explanation for relatively high prices.

The reasons why an enterprise's pricing is rejected by customers are numerous.

In most cases, price is not the only reason for the problem. In many cases, price is not even the cause of the problem.

In most cases, price rejection is the symptom and signal of other elements of pricing strategy.

Just as doctors are able to diagnose the real cause of the disease through the patient's symptoms, the enterprise must discern the symptoms of price rejection to confirm the difference in the pricing strategy.

The real source of pricing problems can not be diagnosed. It is only concerned with solving surface problems (such as price cuts). In the long run, it is a damage to the profitability of products and enterprises.

An effective pricing strategy can match price to value.

Pricing strategy consists of multiple levels, which are the supporting points of pricing, which can maximize profits.

The combination of these levels forms the strategic pricing of Pyramid.

Based on value, value creation is the cornerstone of Pyramid.

An in-depth understanding of how products and services create value for customers is an important source of information for the formation and development of pricing structures.

Once the price structure is determined, marketing can develop information and tools, and communicate with consumers about value information.

The final step before determining the price is to ensure that the pricing process inside the enterprise can survive the test of aggressive customers and competitors and maintain the same end.

Value creation

To estimate the value of a product needs to have an in-depth understanding of the needs of customers, and then pform the characteristics of a product into the benefits that customers can get, and then turn it into value estimation.

In business market, value estimation is mainly concerned with the economic impact of products or services on consumers' costs and benefits.

Next, we will take Intel's "Pentium" chip as an example to illustrate.

The Pentium chip features a built-in mathematical coprocessor. After installing the device, computer manufacturers do not need to install other chips on the motherboard.

This feature once made Intel get a high premium.

However, AMD also invested heavily, and quickly developed products that could rival the Pentium technology, eliminating Intel's pricing advantage.

Intel management research shows that terminal customers are more inclined to purchase computers equipped with Intel chips.

In addition, customers are willing to pay more for a computer equipped with Intel chips.

After understanding the value of its brand to computer makers, Intel launched an advertising campaign called "Intel Inside" to build up the extra price value of the chip.

For computer manufacturers who serve price oriented users, their customers only need basic product functions, and there is no difference between them.

Intel's plan is to create a "competitor" brand, Celeron.

In fact, it is a Pentium chip that closes the math coprocessor, but its price is lower than Pentium.

Intel's example proves that understanding products is very important for different customers' different values, but the ultimate goal should be to design different products pricing according to different values first.

Companies often design products to meet customers' needs in order to please customers, but when prices become one of the considerations, many customers are willing to give up these needs in exchange for lower prices.

The difficulty lies in understanding the needs of customers and understanding what kind of pricing can reflect the meaningful value created by different customers.

Therefore, instead of designing products to meet customer needs, enterprises should design meaningful customers who are willing to pay for them.

Pricing for customers, not for products

Understanding how to create value for different segments of customers, the next step should be to develop a price structure linked to price and value.

This price structure should have the ability to minimize the cost of supply.

The most common mistake of pricing managers is that they aim to price products instead of subdividing them into customers.

The same product can produce different values because of different customers, and setting up a single price for the product will cause at least one customer group to get the wrong price.

If a high price is set for a high value customer, the risk of losing too much profit to a low value user will be borne.

On the contrary, if low value customers are chosen, they will lose many profits that they could get from high value customers.

The solution to this dilemma is to establish a price structure that is linked to the value of the price, rather than linking the price to the product it provides.

There are two techniques for price structure: unit of measurement and division of price.

The unit of price measurement is actually the unit used when prices are applied to products or services.

The hairdresser's unit of charge to a male customer is the number of haircuts - a measure that is fair to the customer and has a profit space for a barber, because the time for each customer's haircut is similar.

But it is not reasonable to count the number of haircuts for men and women at the same time, because women's hair often takes more time to prune, and the price of a haircut may mean a shorter haircut than a shorter haircut.

In order to solve this problem, the hairdressing center often adds a length unit supplementary pricing system on the basis of the number of haircuts, and customers with longer hair need to pay higher prices.

This example reveals that price measurement is linked to price and service cost, not to value.

Strategic pricing requires a price structure that can reflect the different values of different customer segments, and at the same time be able to compensate for the cost differences between different customer segments.

For example, the courier company will have a "delivery time" price measurement unit after their "unit" price measurement unit, so that those who focus on fast delivery will pay more for this service.

Segmentation is another way to create price structure, which links price to value and service cost.

There are two ways for movie theaters: discounting fares for children and the elderly, reducing daytime prices.

The same product has different value for different customer groups and at different time periods. The pricing method of movie theater enables it to get as much sales revenue as possible.

Every airline passenger is familiar with price fences and their role in price.

Airlines know that they actually serve two customer segments simultaneously, and the value of an aircraft seat is totally different for the two groups.

By using price segmentation, enterprises can more accurately match prices with the value of customers, thereby increasing profits.

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Price and value communication

The next step of the pricing strategy is to communicate with customers based on the value of different customers.

Inappropriate value communication will lead to higher price sensitivity and more intense price negotiations.

Customers may not be aware of the new features of the product, do not know how to use the product, or do not understand a specific function of the product to meet their needs, while other products can not do it, in short, customers can not understand the value of the product.

Therefore, marketers are obliged to solve these problems through effective price and value communication.

This is particularly evident in the field of new technology applications.

The birth of IPOD enables consumers to buy and enjoy music in a completely new way.

But some consumers think the price of $299 is too high, because they do not know that IPOD allows users to upload the entire CD to the memory bar.

Other consumers do not know that IPOD can allow them to buy a single song heard on the radio without buying the whole CD.

Apple's leaders for cultural trends released advertisements to make the public realize that IPOD is both useful and fashionable with the most popular songs and creative images.

Apple then spent a lot of money launching a public relations project to create an authoritative image of new technology in the face of relatively unknown consumers.

This communication strategy has been a success. Over the past 3 and a half years after IPOD was launched at a much higher price than the traditional player, more than 10 million IPOD had been sold out.

To sum up, effective price communication based on the value of different customers and customers is very important in matching customers' value and their willingness to pay.

Effective value communication requires enterprises to provide appropriate tools to their salesmen.

Tools and information depend on whether the essence of the value of products or services produced by enterprises is more economical or more psychological.

The challenge for marketers is to decide which methods are most appropriate and develop information and tools that help customers understand product value.

Don't ruin your pricing.

Pricing involves management skills, how to control the expectations of customers and employees to motivate them to make more profits.

These expectations are determined by whether or not an enterprise can execute its fixed pricing decisions in front of aggressive customers.

If a company has a policy of not giving up any trading opportunity, it is announced to the customer that the stronger the offensive, the better the price negotiation.

The problem facing the Gillette Company in the late 90s is evidence.

Gillette's top executives are under pressure from share prices to ensure revenue growth every quarter.

The management closely monitors the sales team to ensure that the company can achieve revenue targets quarterly.

If the sales notice shows a fall in the month of the end of the season, the management will offer a one-off discount to attract customers' large orders before the end of the season.

This unwritten quarterly discount rule has had a significant impact on distributors and salesmen.

Dealers quickly learned not to buy in the first half of each quarter and look forward to the quarterly discounts that must occur every time.

Salesmen learned that they did not need to work hard in the first half of the season, because their efforts would not be rewarded.

The lack of pricing constraints eventually led to management difficulties, and between 1999 and 2001, the company's stock fell by more than 50%.

The key to effective pricing policy is to show the customer that the price set by the company will come from the end.

But that does not mean that the sales team of a company is not flexible in negotiations.

The sales team should replace the traditional "product changeless and variable price" system with "variable products and constant pricing" system.

Even if the enterprise has formulated the pricing strategy, if implemented improperly, there will still be a risk similar to that of Gillette Company.

The effective implementation of the pricing strategy needs to change the expectations and actions of every role actor in the sales link.

Customers need to understand that the business is fair and consistent to all customers, and that it is not possible to abuse customers' rights to get a discount.

Salespeople must know that if their sales increase their profit level, they will be rewarded accordingly, instead of pursuing sales by price.

The financial sector should learn not only to focus on cost as a determinant of price, but also to better understand trade-offs between pricing, cost and market reaction.

There is only one goal of Pricing: maximizing profits, and the problem is that everyone in the business has different opinions on how to price it to achieve this goal.

For pricing managers, the key questions are: "who is right" and "how to get other people's support for pricing when I have not reached a consensus"?

One of the reasons why enterprises regard pricing as a challenge is that they lack systematic process to combine various elements (such as customer value, cost, competitor price and broad strategic objective) to form the correct pricing.

What we need is a combination of all relevant data, and at the same time, a decision model for management to leave sufficient space for decision making after pricing.

Chinese enterprises pricing "new tactics"

Chinese enterprises are moving towards a new stage in the development process.

In the past, Chinese enterprises were faced with poor infrastructure conditions, low quality labor groups and few customers' credibility.

These means that there is no other way to compete except price competition.

Nowadays, many Chinese enterprises have competitive advantages in these areas, and these enterprises are beginning to go to the high end of the market.

However, if we want to win the sales at a higher price level, we must develop a strategy to manage pricing and product value.

On the one hand, Chinese enterprises can not ignore the cost problem. On the other hand, they need to learn not only to sell low cost products, but also to "high value" products.

Chinese manufacturers should take a look at their middle class, and they no longer need products that are just cheap.

This group still wants to get the best possible price, but they also need and are willing to pay a premium to buy high quality products.

The key is to understand that most customers are looking for "high value" goods, and the price is only one aspect of "high value".

In order to enhance profitability in a new era, Chinese enterprises must understand the non price benefits that customers are looking for and design corresponding businesses.

In formulating effective strategic pricing, Chinese enterprises also need to correct the erroneous concepts of market share in determining profitability.

Many companies were involved in endless price wars until the cash flow dried up.

In fact, it is not a higher market share, but a higher profit margin, which ensures the cost of product development, marketing and capital investment, thus contributing to the growth of enterprises.

If an enterprise wants to grow up, it should not rely on price means unless the price means can play a saving role in the convertible version, and the cost saved is greater than the price advantage needed to win the sale.

Such special cases do exist when Chinese enterprises compete with European and American competitors in the market, but they should not appear in the competition between Chinese enterprises and domestic enterprises.

Through the implementation of strategic pricing, Chinese enterprises gain more than just maximizing profits, and they can make more direct response to the needs of different customers in the market, thereby increasing sales. However, this requires more creative pricing, not just to offset the offset cost plus a certain profit margin. The successful pricing in the Chinese market includes making procedures and structures, and communicating with customers in order to enable them to accept the pricing based on the value they can get.