Innovation for Customer Cost Reduction
Price Point Bias
Capsule: A bias against high or low Price Points is a common trait of Standard Leaders. A percentage of sales in these products that is lower than those of the industry’s best performers is a sure sign of this unfortunate trait.
For helpful context on this step:
- Video #69: Overview of Products and Services Part 1: How to Look
- Video #78: Competing Against Low-End Competition Part 1
- Video #79: Competing Against Low-End Competition Part 2
- Video #20: Definition of Performance Leaders
- Video #21: Definition of Price Leaders
- Video #24: Price Point Specialists in Hostility
Symptoms and Implications:
- Low end products are gaining share of the market
- Price points are growing at differential rates as companies enter higher end niches to improve profits
Price Points other than the Standard Leader Price Point often cause Standard Leaders problems in an industry. The diagnosis of Price Points in the market should test for the existence of cultural bias against other Price Points. Standard Leaders may talk themselves out of the introduction of either high or low Price Points as part of their overall value proposition. Marketing-oriented Standard Leaders dislike Price Leader products. These Standard Leaders view Price Leader products as Trojan horses for lower prices in the market place. Many also believe that low priced products depreciate the quality of the Company’s brand name. At the opposite extreme, sit Standard Leaders dominated by an operations culture. These Standard Leaders dislike Performance Leader products. They view these products as disruptive to the smooth flow of operations and to the low costs that smooth running operations, with long product runs, create.
To help guard against an innate bias, a Standard Leader company should look carefully at each of the Performance Leader and Price Leader Price Points in its market. It should determine the amount of volume sold at each Price Point and the growth rates and margins that these Price Points offer the competitors that carry them. Finally, the Standard Leader should consider the Price Point buying patterns that its target Core customer segments are likely to have over the planning horizon.
Price Point Bias Questions
- How much of the Company’s total volume is sold at each Price Point? (Analysis 41)
- Why does the Company have different proportions of Price Points in its sales mix than does the industry as a whole?
- Which competitor leadership type is growing fastest in the market?
- Which competitor leadership type is earning the highest returns on investment?
- What is the average Company margin for high, medium, and low Price Point products?
- What is the percentage of their total purchases that the target Core customer segments buy at each Price Point? (Analysis 42)
- Is this percentage likely to change during the planning horizon?
- Do these bias analyses suggest a potential or need for new Price Points in the Company’s current product mix?
The Company may undertake another set of analyses to ensure that its growth and profitability are not impeded by a cultural bias against either high or low Price Points. These analyses compare the Company’s proportions of sales by Price Points to the proportions of those competitors who have strong share growth profiles in the industry and to those competitors that seem to have higher than average profitability. The analyses also might contrast the Company’s current Price Point product mix with those of the weaker competitors in the marketplace.
- Audio Tip #87: Potential Low-End Competitors in a Marketplace
- Audio Tip #88: Questions to Determine Your Response to a Low-End Competitor
More Price Point Bias Questions