Analysis 42: Target Customer Purchases By Price Point


HOW TO INTERPRET THE ANALYSIS: This exhibit shows the purchasing patterns for a company's target Core customer purchases. The percentage measures the units of the total purchases by the target customer segment. This company's target Core customer group purchases 19% of its total purchases at the Price Leader Price Point and 9% at the Performance Leader Price Point. Assuming that there are no Next Leader products in the market, the remaining 72% of this target customer segment purchases are at the Standard Leader Price Point. If a company with this target customer segment would decide to withdraw from, or not offer, one of these two Price Points, these sales would be in jeopardy.

PURPOSE: This analysis quantifies the percentage of their total purchases that the target Core customer segment buys at the Performance Leader and Price Leader price points. The company would use this analysis to determine the risk it incurs by failing to cover price points purchased by its target customer segment.

APPROACH: The company's marketing and sales staff surveys customers and makes estimates of the purchases by price point of its target customer segment. This analysis is best done using units as the basis of measuring market share, however, if units are not available, dollar purchases will be adequate.

This analysis assumes that the company undertaking it is a Standard Leader considering coverage of Performance Leader and Price Leader price points. The same analysis can be done if the company is a Performance Leader or Price Leader.

Once the company has completed this analysis, it should evaluate the risk it incurs by the decision not to cover a price point its target Core customers purchase today or could purchase in the near future. If the target customer segment would view the company's decision not to cover a price point as a "failure", then the company incurs significant risk by not covering the price point. This "failure" opens the company's Core relationships to other suppliers and may foreclose the company's entrance into other potentially attractive customers in its target customer segment.

Examples of:
Standard Leader » Performance Leader » Price Leader » Next Leader» Industries With Four Price Points »

Return to Diagnose Products and Services: Price Point Bias

Recommended Reading

For a greater overall perspective on this subject, we recommend the following related items:


Symptoms and Implications: Symptoms developing in the market that would suggest the need for this analysis.

Perspectives: Conclusions we have reached as a result of our long-term study and observations.

  • "Attention K-Mart Copiers"
    To match experienced price competitors, management must be realistic about what a low cost and low price strategy really entails. (1987)

  • "When Product Mix Matters"
    There are several price point specialists. Some are better positioned than others for long term success in a hostile market place. (1991)

  • "Why Do Leaders Lead?"
    There are four potential kinds of leaders in the marketplace. In order to be successful, each must follow its own particular rules. (1986)

  • "Success Under Fire: Policies to Prosper in Hostile Times"
    A hostile market evolves through six predictable phases. Most companies fail, withdraw or become acquisitions before this evolution is complete. They fail because their management policies were not effective. The few who survive and prosper do so by making decisions that follow two rules: attract customers and discourage competition. Losers lose by not following the second rule.

  • "The Choice of New Products"
    Companies add new products whether or not a market is hostile. But the choice of which products are most advantageous to add varies with the market situation. (1995)

  • "Turmoil Below: Confronting Low-End Competition"
    There are four major types of competitor who offer your customers low prices. Each of them have distinct weaknesses. Your response to them depends on your answer to several tests that you would apply to your market and your competition.