Price is not the answer

It’s amazing how as a society we are so focused on price; well, that’s what all the advertising tells us.

How wrong this is. I have seen many companies, small and large who believe this myth only to reposition themselves to attack this market and put themselves out of business.

Basically 20% of the market buys on price and the other 80% buys on perceived value. So what does this mean?

Let’s start with the 20% of the market and what the 20% is made up of.

15% will always buy the cheapest price and there’s no changing that. But conversely 5% will buy the most expensive. This seems like a small market but the world is a big place. An example of that is the Gucci’s, Louis Vuitton’s and the Tom Fords’ of this world whose sales represent more than $15 billion.

That leaves us with the 80% who buy on perceived value.

I am often told that I am wrong and some of the examples I am given are:

• Sales people say, “we lost on price as we were not the cheapest”
• Managers say, “our market is dead you have to be the cheapest”
• Friends tell me that they only ever buy the cheapest

The reality is that unless you can show a prospective customer “perceived value” then the only way they can buy is on price.

That’s right. If you have recently lost business then there is a 20% chance that the price was wrong and there was an 80% chance that the customer could not see value in your offerings.

This is hard to accept as it means the sales team did something wrong and it’s easier to blame price and move on.

The mobile phone industry is a great example of this. Apple, Samsung, Sony and LG represent the majority of sales globally but there are many other much cheaper alternatives with similar functionality. If people buy only on price then something has gone wrong here.

Apple does a great job of selling perceived value. When I ask friends why they purchased their iPhone they quickly justify the price. In other words they see the perceived value.

The real question is, which market segment does your company go after?

15%   the cheapest

5%    most expensive

80%   perceived value

Your “go to market” strategy has to clearly target the segment you are after. You cannot do all three with one strategy or one delivery model as this will fail. The days we could be all thing to all people are over; there is just too much competition out there.