Archive for the ‘Brand Management’ Tag

Are you charging your customers enough?

Nearly every executive pays lip service to “shareholder value.” But many of them readily, if unwittingly, make business decisions that run counter to that objective.

Over the long run, no variable correlates more strongly with shareholder value than profit maximization — something that many companies do not prioritize in spirit, let alone in practice.

Instead, they often focus on flavor-of-the-month strategies such as market share growth or product innovation. Believe it or not, these are not always compatible with maximizing profit over the long run.

The problem with focusing on market share is that growth is often achieved at the expense of competitors. “Switchers” are the most difficult customers to attract, frequently requiring discounted pricing or free trials, and are also the most difficult to retain. The result is generally a temporary increase in market share that does not translate into higher revenue or lower operating costs.

While focusing on product innovation is always a good place to start, it too can come up short when it comes to maximizing profit. One major reason is a failure to properly price the products. An introductory price that is too low for too long — usually in hopes of stealing market share — may never produce the return a company is hoping for.

The result is that companies often spin their wheels, leaving profit on the table because they don’t understand the true value of their enhanced product — or feel that their brand does not command the heft required to demand premium pricing for premium quality.

Why does pricing go off the rails?

Our consulting firm recently worked with a company whose stock was under-performing relative to its peers. The company’s solution had been to increase market share through product upgrades. Despite considerable money and effort, however, the strategy failed to build top-line revenue and, as a result, investors were unmoved.

When we performed the postmortem we determined that management put a great deal of care into identifying what customers wanted and how to market the products but put little thought into what to charge. Not only were the prices too low to feasibly provide a return on the organization’s R&D investment, customers failed in lieu of premium pricing to grasp the products’ premium quality.

Setting the right price

It can be a challenge to devise and stick to a pricing strategy that reflects the true value of a product or service without compromising competitiveness. Here are a few tips that can make the task a little easier:

  • Ensure that every stakeholder both understands the primacy of long-term profitability and is aligned around that goal;
  • Recognize that there may be special instances when premium pricing should temporarily take the backseat to marketplace competition;
  • Understand your existing and potential customers’ needs and budget and seek to meet both;
  • Enumerate the ways in which your product or service addresses those needs, using tools such as a customer-value model;
  • Consider if or how you need to differentiate and build your brand to support premium pricing.

For more information on our services and work, please visit the Quanta Consulting Inc., web site.

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