According to Hermann Simon - expert in strategy, marketing, pricing and the author of around thirty books - there are only three profit drivers: volume, price and cost. Unfortunately, companies pay more attention to costs, when the biggest profit driver is the price. Let's look at some examples examples.
In Simon's own words, "approximately 80% of managerial attention is focused on costs, processes and manufacturing... if something is left over, it is dedicated to sales, speaking of marketing". In this framework, pricing rarely receives the necessary attention.
Of course, when talking about price, it cannot be done in isolation. The price is a reflection of the value that the customer perceives of his purchase (Tweet this). And this value defines the consumer's willingness to pay. Understanding this difference and creating value from the very start are the key to good pricing.
Let's take a simple example ... the iPhone. Why do consumers still want to buy this gadget when there are other similar and lower cost products in the market? The answer is simple... for its value. For many buyers, an iPhone is worth more than any other gadget made by a different brand.
If a company wishes to modify its prices, it is not enough simply to raise the numbers: it is necessary to add value (Tweet this). A good example of this can be seen in Corelle's marketing execution. Corelle, a brand of tableware, wanted to demonstrate the value of its products through showing how resistant they were to damage. What they did was to place their plates in a vending machine in shopping centres where their target market were located.
Yes, what you are imagining was imagined by many: when the plate fall through the vending machine wouldn't they just break? That was exactly the value proposition: despite the fall, the plate did not break!
Of course the action caused a sensation and the value of the product was demonstrated.What was the result of the execution? An increase in sales of global 10% in under a month.
Thinking that the volume of sales determines the success of a company is not necessarily true, since its profitability can be low. Thinking that reducing costs is optimal is also often false, often this only leads to unnecessary cuts and price wars with competition that are not sustainable in the long run. Increase the prices of products through the perception of value of your products or services is not only a sure way and the best impeller of profits in a strategy.
If your products do not have a higher value than the competition, why should consumers buy from you? (Tweet this)