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.

 


Table of Contents:

I. How Harley Brought A Dying Brand & Price Positioning Strategy back to Life

II. Price Positioning: How Do Customers Perceive Your Price?


 

 



How Harley Brought A Dying Brand & Price Positioning Strategy back to Life 📈


 

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

 

However, in 2004, things changed for Harley and they realised they were losing market share. What’s more, Harley’s positioning map highlighted that their brand was in decline, and its 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

 

Basically, a price-benefit positioning map displays the relationship between the main benefit that a product provides to consumers and the prices of all the products in a specific market. There are 3 steps in creating that map:

 

  1. Determine the market.

To draw a significant map, you need to identify the frontiers of the market that you’re interested in. There are 3 ways on how to do it:

 

    • Recognize the consumer needs that you want to understand. Make an overview of all the products and services that satisfy those needs. In this way, you’re not sidetracked by new entrants and technologies or unusual offerings taking care of those needs.
    • Select the location (country or region) that you want to study. If competitors, customers or products are used differently across borders, limiting the geographic scope of the analysis is better.
    • Plan if you want to monitor the whole market for a product or only a specific segment. Also, if you choose to explore the retail or wholesale market. And if you’re going to keep an eye on brands and products. Changing these sets of analysis will enable you to create different maps.

 

  1. Select the price and know the main benefit.

After selecting the market that you want to focus on, identify the extent of your analysis of prices. By doing so, you have already chosen whether to study retail or wholesale prices. However, you must also consider other pricing variables. Compare initial prices or prices that include life cycle costs, prices with or without transaction costs, and the prices of unbundled or bundled offers. While gathering data, don’t forget to be consistent about the price definition you use.

It is not easy to identify the primary benefit (the benefit that explains the largest amount of variance in prices). A product provides various benefits such as durability, serviceability, aesthetics, basic functions, ease of use, additional features, etc. Customers usually place value on the features of the product, not the companies. Thus, the success of strategies depends on it. In recognizing that value, you need to create a list of the benefits provided by various products or brands in the market and collect data on how customers view those benefits.

 

  1. Mark the positions and indicate the line that best fits the points on the map.

The next step after identifying the main benefit is to draw a positioning map. Mark the positions of every company’s product or brand based on its price and level of the main benefit. The map will show the relative positions of competitors on a common scale in the marketplace.

 

Lastly, mark the line that best fits the points on the map. The line displays how much customers are supposed to pay on average to obtain different levels of the main benefit. Furthermore, the slope of the line shows how much more a customer is expected to pay for a higher level of the main benefit.

 

Implications

 

  • Segmenting your customers’ base would depend on who values your product the most. Are you going to charge a high price to a 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 consumer’s 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.

 

  • Harley is a good example of a company that responds to competition positively. They took it as a challenge, resetting the business to focus on improving their agility to learn and turn ideas around. In addition, using high-technology in innovating new products with their own unique tradition and powerful mystique.

 

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.

 

  • Despite Harley’s losing market share in 2004, they fought and built a new marketing and pricing strategy to get back on track.

 

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

 

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price positioning strategy


Price Positioning: How Do Customers Perceive Your Price? 🧴


 

What message does price give to a potential customer? Why is there variation in prices? The answer is price positioning.

 

For instance, in Australia, the average price for a 170-gram yoghurt is 2 AUD. For sure, you can find yoghurts sold for less than that amount in some parts of the country and certainly more expensive in a reputable store.

 

Thinking about the goods you buy; you will know whether the specific product is viewed as cheap or expensive.

 

Many customers have a theoretical range of prices that help them formulate the position of the price of a product. Perceiving price as value for money depends on various factors such as: age, product knowledge, income, and experience of purchasing similar products.

 

Therefore, price positioning is vital in helping to persuade customers to buy a product.

 

If you have a discount supermarket chain like Aldi or Lidl, you’ll always try to keep your prices low as much as possible. Certainly, cheaper than rivals like Waitrose and Marks & Spencer.

 

On the contrary, if your product is positioned to be a luxury product, pricing it too low will damage your brand’s reputation. Your pricing should align with product and brand positioning in the market.

 

In this article, we will talk about price positioning and provide some examples. We will also discuss the three price positions to choose from that will let you position your product/service. In addition, we will tackle the effective positioning and differentiation strategies that businesses can utilise.

 

By the end of this article, you will learn how to position and differentiate your product/service in the marketplace. Thus, allowing your customers to view your product as having value and is worth the price they’re paying for.

 

 

price positioning

What is price positioning?

 

Price positioning is the act of setting a price on a particular product/service that is within a specific price range. The price positioning shows where a product is positioned as regards to its competitors in a particular market as well as to the customer’s perception. With price positioning, you will know whether the product is viewed as cheap (low-priced) or expensive high-priced). Price positioning is significant to businesses that are trying to persuade customers to buy a certain product/service.

 

Examples of Price Positioning

 

Take, for instance, the Dollarama, Canada’s largest retailer that sells items for four dollars or less. With this tactic, they want shoppers to think that buying there is economical. The business positions itself as having the cheapest price on the market.

 

Other examples are Hermès handbags or Rolex watches. Undoubtedly, the handiwork of these products dictates a higher price. Thus, these items belong to the luxury market, completely concentrating on advertising, branding and quality. These products also promote a price premium that rules over the costs of other features. Also, part of the premium is to create a “cost of ownership” that provides an upper-class status to the owner. Definitely, some consumers want to be in that circle.

 

Another famous example is the supermarkets that are providing discounts for some basic, every day purchased items. They offer discounts to products that typically go into a family grocery cart. This creates an impression that they are the cheaper option. However, in reality, other products in that same cart actually compensate for the very low price. This is called the loss leader pricing strategy.

 

What are the 3 price positions?

 

Generally, there are three price positioning moves to choose from that will help you to position your product/service based on the dictates of business planning and strategy:

 

  1. Penetration Pricing – is the favoured alternative when a business is trying to attract a new customer and convince to try the new offering by initially providing a lower price. In doing so, it helps a new product/service enter the market and entice customers away from rivals. The aim of a price penetration strategy is to convince customers to try a new product and create a market share with the expectation of keeping the new customers when prices go back to normal levels.

 

Some examples of penetration pricing include: online news website providing a one-month subscription-based service for free or an offer from a bank giving a free checking account for 6 months.

 

  1. Skimming Pricing – is the opposite of penetration pricing. In price skimming, a business sets the initial price high and then lowers it over time. During the new product launch, when companies skim, they sell to customers with a high willingness-to-pay. As the demand of the first customers slows down, the company lowers the price to attract another tier of customers.

 

Oftentimes, price skimming is used when a new product penetrates the market. The purpose is to gain as much profit as possible while consumer demand is high and rivals have not entered the market yet.

 

A popular example of price skimming is the initial release of the Apple iPhone back on Sept. 5, 2007. It was offered initially for $599. Naturally, Apple fans rushed to buy the iPhone. Then, two months after it was launched, Apple lowered the price from $599 to $399 to gain more customers. However, the big reduction in price was too much too soon for the early adopters. Remember, skimming as a market entry strategy will work only if you have a dominant position just like Apple as the iPhone is unique. (Lesson learned from Apple’s case: bring your price down slowly.) 

 

  1. Neutral Pricing – is the most common strategy and preferred option when the market has fierce competition and little differentiation among competing offers. Prices are set so that customers are somewhat indifferent between your product and your rival’s product after considering all features and benefits, including price.

 

In other words, neutral pricing is just maintaining the status quo. You are not attempting to either gain or lose market share. Well, not all customers will be indifferent because some will like your product better, others will prefer your competitor’s.

 

For example, Sony televisions, are regularly priced above competitor levels. Since they provide such excellent value, the market still considers the price as neutral.

 

 

Effective Price Positioning & Differentiation Strategies

 

Businesses should be able to position and differentiate their product from what the rivals offer. The consumer should view your product as having value and is worth the price. In order to achieve these goals, companies have several techniques that they can utilise.

 

Knowing Target Market Demographics

 

Products are created to entice to a specific demographic segment. Demographics include age, gender, income, level education, and language.

 

For instance, check the profile of people who buy luxury cars. Normally, they have higher incomes, thus, you wouldn’t try to sell them regular cars to this demographic.

 

A strategy that appropriately targets a market segment has a set of conditions associated with it:

  • value to the consumer,
  • powerful position against competitors,
  • more effective communications
  • Customer retention and acquisition.

 

Low-Price Strategy

 

For most customers, pricing is a major consideration. If a business can persuade customers that they will get more value for their money, they will purchase the product.

 

A lower price strategy may entail compromises in the quality of the product or to lower the range of offerings. For instance, a car manufacturer will offer a low price but will use fabric upholstery instead of leather. However, the customer still needs to believe that he is getting good value for his money even though a product is low-priced.

 

High-Price Strategy

 

Consumers perceive expensive products as high-quality and are worth the price. Therefore, to create this perception to the customers, the business should focus its advertising on the best features and benefits of its products compared to its competitors.

 

Limited Distribution Strategy

 

Companies can build the impression of better value by limiting the distribution of their products. Just like golf equipment, manufacturers have other models of clubs and balls that are only available in pro shops. Golfers have the perception that the products are of higher quality because they’re not readily available in stores like Target or Walmart. Thus, customers are willing to pay more for this exclusive set of gold clubs.

 

Head-to-Head Competition

 

When two products have the same features, quality and price, a business should look for ways to differentiate his product from the competitors. For example, focusing on something that provides an advantage in the customers’ mind. Such as highlighting better customer service, faster delivery times, or a wider selection of colours and sizes in marketing and advertising.

 

Effective positioning and differentiation techniques begin with an analysis and understanding of the customer’s preferences, and the power of the competition. Also, marketing campaigns should focus on quality or price. And of course, the purpose should be to reach the target market.

 

 

Implications

 

  • A different position and pricing will lead to targeting a different consumer group. Select price effectively based on what position you’re choosing to take in the market. Therefore, it is very important to evaluate your rivals’ position first before deciding on pricing.

 

  • Pricing and brand equity are both important as other differentiators. Price also conveys a quality message. Thus, it can impact the notional place your brand takes in the minds of your target customers.

 

  • Consistency is key and businesses can implement several pricing strategies and tactics to keep that level of consistency. Price position provides the product with a distinctive selling proposition, consequently, making that product stand out from its competitors. In addition, a price position is also perfect when a company can charge a high price and ward off the competition.

 

Conclusion

 

Price positioning has a strong impact in most markets on how the brand is perceived. Some businesses underprice or overprice because they don’t exactly know what they are conveying to their customers because their brand’s promise is not clear.

 

The bottom line is, it’s all about how customers perceive the brand and their willingness to pay now and the potential to pay in the future. However, working on branding and positioning requires tracking the changes in customers’ willingness-to-pay over time. For instance, every three or six months.

 

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