If your industry is fragmented (many competing players), your price point can be determined by using the aggregate industry supply and demand curves for your product or service. Where demand for your product is high and the supply of it is low, then a premium price can be achieved. If demand falls while supply increases, then price will tend towards the marginal cost of your product. Selling at or below marginal cost is not advisable or sustainable. If you get to this point, you’ll need to create your new strategic future. Maybe we can help your company do just that?
If there are few or no competitors to your product this may mean that overall customer demand is low and if so, you being the only provider is problematic. Few or no competitors to your product in a market with high demand, allows you a monopoly situation and premium price can be achieved.
Premium prices are achieved consistently via innovations to your product or service and the resultant differentiation you now have relative to any would be competitors. Innovation can be addressed in four key ways and tackling each paves the way to premium prices and healthy profits:
- Superior Product Characteristics.
- Great Pre Sales, Point of Sale and Post Sales Customer Experiences.
- Purchase Convenience and Availability.
- Brand and Product Perception.
The better your customer’s experience in all these four mentioned areas, the greater the potential price premium. Apple iPhone is a good example. BMW motorbikes are another:
- BMW make a superior motorbike in both the GS1200 Adventure and the K1300S Sports Tourer. Score 10/10.
- BMW warranties, service costs and service intervals are generous and their Roadside Assist Service is brilliant, with emergency accommodation and courtesy cars available if ever needed. Score 8/10.
- BMW motorbikes need to be purchased from an authorized dealer, which is not always easy geographically. Score 7/10.
- BMW Motorad is a high quality Brand, which radiates reliability, safety and the freedom to choose a new path every second and never look back. Score 9/10.
Marginal cost for a BMW K1300s is around $5K and approximately $130 for an iPhone. They both retail for more than five times that price!
Because BMW and Apple have done such a great job paving all four ways, I was happy to pay a premium and now own both!