Companies must necessarily focus on value — what they offer to the customer that will motivate that customer to buy from them rather than from their competitors. And value must be defined in terms of what the customer is willing to pay for.
When designing or selecting a product to bring to market, it is important to understand the relationship between the product characteristics and the customer’s interests. A product might have the best performance of anything in the market but if that drives the price too high, it won’t be successful — if customers are not willing to pay for the extra performance.
Every product comes to market with strengths and weaknesses. And every product comes to a market that has certain expectations. Success comes to the company that can make the right match and deliver what the market wants — no more, no less.
Price is sometimes the deciding factor — but not always. Price paid, however, always reflects the perceived value that the customer assigns to the purchase.
Consider a box of disposable diapers. There are premium brands and there are bargain brands. There are customers that will always buy the least expensive and others that are willing to pay more for thicker, more absorbent, or differently designed diapers. When a premium diaper is “on sale” at a reduced price but still higher than the price of the bargain brand, some bargain-brand buyers will pay a little more for the better brand because the perceived increased value is worth more than the difference in price.
Take that same exact bargain brand diaper and put it in a 24-hour convenience store at a price that is higher than that of the premium brand at its regular outlets. Someone coming into the store at 2 a.m. desperately in need of diapers will willingly pay more than premium diaper prices for the lower quality product. The value of availability easily overcomes the price premium. It’s not always the obvious product characteristics that win the sale.
Let’s say a company makes a product at a certain quality level and sells it successfully in a given market. The company decides to invest in some new equipment and processes to improve the quality, thinking that it can justify a price increase based on the higher quality. When they bring the improved product to market, however, sales drop. The increased quality is not perceived as an increase in value to the customer — the old product was perfectly fine and customers won’t pay more for something that, for them, has the same value. The producer will now have to find a new market where the increased quality is appreciated by the customers, or lower the price back to where it was and live with reduced margins because the quality improvement has increased their cost-to-produce.
In most cases, one or more of these factors: lower price, higher quality, functional superiority, reliability, attractive design, and/or reputation (brand name) will attract the customer and make the sale. But some of these factors are mutually exclusive (high quality and low cost, for example) and it is important to know what is important to the customer to create a go-to-market strategy that results in success for your products and your company.
Reprinted from Portsmouth Herald / Seacoastonline.com – September 17, 2012