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

 

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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