Is your price positioning strategy working to build your brand or killing it?

 

Most senior executives do not know exactly where their product’s price is positioned in the competitive market. And over time this leads to serious brand issues and ongoing revenue and margin loss. 

 

Great products and prices don’t guarantee success. It requires meticulous planning. Knowing all the situations and results from data analysis will give a clear insight into the best price positioning strategy to use.

 

If customers don’t know what they’re paying for, and pricing managers don’t know what they’re charging for, it’s almost impossible for companies to identify their pricing and positioning against the competitors.

 

A price-benefit positioning map drawn from a simple statistical analysis provides insights into the relationship between prices and benefits and tracks how competitive positions change over time. Pricing teams can use the tool to compare their pricing against rivals, dissect competitors’ strategies, and predict a market’s future. By creating an accurate map of the competitive landscape, companies can also get everyone in the organisation on the same page.

 

In this article, we will show you how to create a price positioning map to determine how your products stand against competitors 

 

We’ll teach you how to price position your products. We’ll share insights into how Harley turned around their business and brand using clever price positioning strategy. And we will give you some tips on how to apply strategic price positioning in your business.

 

 

But first, let’s look at why both big and small businesses need to perfect their price positioning strategy – and what happens when companies don’t think price positioning is important enough. Yes, even big brands like Harley Davidson have learned the hard way… losing millions of hard-earned profit dollars in the process.

 

Harley-Davidson’s price positioning strategy

 

A good case example of positioning by price and quality is the Harley-Davidson price positioning strategy. Harley is a brand most people know. It’s a brand that doesn’t need the panoply of wall-to-wall advertising and in-your-face marketing. Instead, its brand recognition comes from a quiet, kind of a behind-the-scenes effort to sell a product more directly on its merits, in its own time and in its own way. Or it did before 2004…

 

For example, in 2002, Harleys’ positioning map showed that most of Harley-Davidson’s models earned large premiums compared with rival products. Customers paid 38% more, on average, for Harleys than they did for foreign motorbikes even though the Japanese Big Four offered 8% to 12% more engine power.

 

By accounting the impact on prices of all physical features and attributes, the price premium they received was most probably the result of the intangible secondary benefits the company offered its customers. This included things like the image created by membership in the Harley Owners Group (HOG) and apparel from Harley-Davidson’s MotorClothes.

 

For many years, Harley attained its cult status, especially among the baby boomer generation – and mostly based on the secondary benefits they offered their customers. These benefits helped Harley-Davidson create its well-known brand image and story – i.e., that people who buy Harleys are adventurous, rule breakers, free spirits and sort of old school macho types. 

 

Losing Market Share

 

But, in 2004, things changed for Harley and they realised they were losing market share. What’s more, Harleys’ positioning map highlighted that their brand was in decline, and there price positioning strategy was driving down profits.

 

In short, the price of a Harley was still higher than that of equivalent Japanese motorbikes, but it no longer commanded the highest price premiums in the market. People no longer thought the brand was as cool as it once was. New American rivals, such as Victory and Big Dog were cooler. What’s more, they were also earning a 41% premium over Harley-Davidson for the same level of engine capacity.

 

 

Floundering position in the price positioning strategy

 

The market leader was floundering, possibly because its image was no longer appetising or outdated to the more hipster crowd of potential customers. It was assumed that both Generation X and Generation Y consumers were seeing the Harley as their father’s motorbike and that many people actually despised its bad-boy macho image.

 

Victory and Big Dog (newcomers to the industry) seized this fractured time for Harley as a new revenue opportunity for them. They took advantage of a desire for a “New American Bike.” They knew people didn’t like Harley-Davidson’s “Easy Rider” image as much as they once did, seeing how people perceived the Harley Owners Group and Harley’s MotorClothes as old fashioned. They then created highly customised products to trump Harley’s. A new brand of rider changed riding a motorcycle from just being cool to an activity of self-expression.

 

But Harley didn’t take this competition sitting down. They came back fighting to build a new marketing and pricing strategy that many businesses from tools and furniture can learn from. 

 

In large part, they made a revival stemming from a hard-eyed comparison of the competition’s strengths. In particular, they saw that their competitors were really good at learning and adapting quickly to change whereas they were not. They then re-set the business to focus on improving their agility to learn and turn ideas around. They sort to quickly turn out new products with high-tech innovations – but with their own unique tradition and a powerful mystique.

 

The company’s conclusion to its success stems from turning left when the competition turns right. ‘Let’s be the alternative and do the things they can’t do’. And that became the strategy in everything Harley’s did and still do.

 

Building a competitive advantage in the price positioning strategy

 

Most companies have to build fresh competitive advantages and obliterate others’ advantages faster than they used to. As innovation pervades the value chain, they must migrate quickly from one competitive position to another, creating new ones, depreciating old ones, and matching rivals’.

 

This process can be confusing and unstable. Pricing management needs new tools to help them systematically analyse their own and other players’ competitive positions in hyper-competitive markets. A costly mistake could lose their position and may not recover.

 

 

 

Drawing positioning maps for the price positioning strategy

 

In its simplest form, a price-benefit positioning map shows the relationship between the primary benefit that a product provides to customers and the prices of all the products in a given market.

 

1. Define the market.

 

To draw a meaningful map, you must specify the boundaries of the market in which you’re interested. Creating such a map involves three steps:

 

  • First, identify the consumer needs you wish to understand. Make an overview of all the products and services that satisfy those needs, so you aren’t sidetracked by fresh entrants, new technologies, or unusual offerings that take care of those needs.

 

  • Second, choose the country or region you wish to study. It’s best to limit the geographic scope of the analysis about customers, competitors, or the way products are used differ widely across borders.

 

  • Finally, decide if you want to track the entire market for a product or only a specific segment if you wish to explore the retail or wholesale market and if you’re going to track products or brands. You can create different maps by changing these sets of analysis.

 

2. Choose the price and determine the primary benefit.

 

Once you’ve defined the market, you need to specify your analysis of prices. You have to assume whether to study retail or wholesale prices when you choose which market to focus on, but you must also consider other pricing parameters. Compare initial prices or prices that include life cycle costs, prices with transaction costs or without them, and the prices of unbundled or bundled offers. Remember to be consistent about the price definition you use while gathering data.

 

3. Identifying the primary benefit

 

A product offers several benefits: basic functions, additional features, durability, serviceability, aesthetics, ease of use, and so on. Besides, companies usually differentiate products by focusing on a different benefit than competitors do. However, the success of strategies depends on the value that customers place on features. To determine that value, you must first draw up a list of the benefits offered by all the different products or brands in the market and gather data on how customers perceive those benefits.

 

4. Plot positions and draw the expected-price line.

 

When you have the primary benefit, draw a positioning map by plotting the position of every company’s product (or brand) in the marketplace according to its price and its level of primary benefit. Such positioning maps may be an oversimplification, but they show the relative positions of competitors on a common scale.

 

5. Interpreting Positioning Maps

 

Positioning maps help companies to see clearly the competitive landscape. They can pinpoint the benefits that customers value, locate unoccupied or less competitive spaces, identify opportunities created by changes in the relationship between the primary benefit and prices, and allow companies to anticipate rivals’ strategies.

 

6. Valuing intangible benefits.

 

Many companies, especially in industrial markets, seek to retain customers by offering intangible benefits. They usually base their price strictly on the product or service itself. But, some might be more successful by tying their price to the intangible benefits they deliver to customers. For example, if you show a product that would make more free time for the customers or lessen the working load that would be enticing to the customers.

 

7. Willingness to pay

 

Different customers have a different willingness to pay; even the same customer will buy differently based upon the purchasing occasion. To determine for whom and when to adjust prices, perform an analysis on customer buying habits. Do consumer research through interviews and focus groups.

 

If possible, use pricing to get your customer to buy several products rather than just one. It’s where the good, better, and best bundle price set is used. By attaching to the main sale you made, you’re giving up a little bit on each product by asking them to buy a bundle of all three services or products. 

 

If your target customers value your product the most and you have room to charge a higher price, you’ll be making more money per sale but the size of your market is limited. If you target the mass market with a lower-priced product, you’ll be making less per transaction but selling a lot more units. The ideal situation is to cut the market into segments with different price points.

 

If the product fails to satisfy the customers will quickly distrust it and spread the news of its failure as well.

 

Implications

 

  • Segmenting your customers’ base would depend on who values your product the most. Are you going to charge a high price to smaller segment or target the mass market with a lower-priced product? Your segmentation will determine your competitive position.

 

  • Finding your competitive edge will be based on whether your product is better or worse than your competitor at meeting consumers immediate needs. If it’s better, your prices should go upward. If they are worse, then your prices should go downward.

 

  • By bundling other products or service to the main sale, you’re giving up a little bit on each product. In effect, consumers can choose what’s best fit for them. So, it’s a good way to get a competitive position.

 

Conclusion

 

  • If your product is better, find the competitive price difference and price upward. If yours isn’t good, you may need to price downward. As your competitors’ prices change, your price should price accordingly. Nothing is static. 

 

  • If you regularly have to discount to sell your product, you’ve either overstocked the product with features that people don’t want to pay for. Or, you’re trying to sell it to the wrong type of customer.

 

  • There’s no answer that fits all situations when it comes to a competitive position. But what’s important is that you “create a model that fits with how people want to buy your product.

 

 

Discover your company’s full potential to drive profitability using the product pricing strategy.

 

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