Strategic Marketing: Pricing/Positioning/Business Model

In the last article we saw how to use Competition/Partnerships/Distribution. In this article we will explore Pricing, Positioning and Business Model.

4. Pricing

Price is the most important tool of the Marketing Mix and the one which generates revenue. Pricing has a tremendous impact on the business model and it is important that it is fully understood.

Pricing should achieve an acceptable level of profitability; make sure you are able to see your P&L through the lens of allocated costs. Secondly, it should also be appealing in the marketplace and affordable by the target customer base. Finally, Pricing should be able to support the costs of the requisite support, necessary product or service quality and promotion. If you really want to serve the most profitable customers and have a stable customer base, then you should be able to say to “NO” to certain customers who can erode your profits. 

 The following are the important attributes of an effective pricing model

  • Value and Price
  • External Factors
  • Selecting the appropriate pricing model

A set of pointed questions would help make the right decision keeping the customer’s point of view in mind. The first and most important question is how important is the product to the customer’s business and how many viable alternatives are available to him. The second question is how does the product help the customer generate value in the marketplace such as greater sales, retain customers and reduce costs. The next would be impact of the product on customer’s operations and whether it is a onetime effect or on a regular sustained basis, in which case, regular support become crucial.

5. Positioning

Positioning has the greatest impact on how the customer perceives the product’s value to his organisation and influences his decision to buy the product. A ‘Positioning Statement’ is necessary to clearly convey the vendor’s image, what the product offers and the intended audience. It should also show a powerful rationale as to why the product should be purchased. Finally, it must be easy to understand, credible and fairly concise.

Quicken, developed by Intuit, is a great example of a positioning statement. It  states its intended audience is the person ,familiar with a home PC,  who pays  bills regularly and is bored of this routine. It declares that its rival, ‘Managing Your Money’, is only for financial analysis while is own product is specifically designed for the average family and easily monitors cheques.

A powerful positioning statement can be developed using the following points

  • For  (. . .  . intended customer group)
  • Who ( . . . .  forceful reason for purchasing the product)
  • Your Product is (. . . .  intended product category whether existing or new)
  • That offers (. . . . .  vital benefits of the product)
  • Distinct from (. . . .  rivals’ offerings)
  • You have brought together (. . . .  critical differentiator for your intended customer base)

We have heard of the phenomenon called “the first mover advantage,” but that does not contribute to the market leadership. It’s an advantage, but it’s not the reason that most leader brands were first in their categories.  The basic reason that the companies can be first in the market is being a “first minder” advantage. That is, the brand that gets into the mind first is the winner, not the brand that is the first in the market place.

Plethora of examples to prove the point:   MITS Altair 8800 was the first personal computer, but never got into the customer’s mind; Apple was the first personal computer to get into the mind. Same with Duryea that was the first automobile; Ford however was the first one to get the share of the mind. The brands need to capture the minds of the prospective buyers. 

Designing your Business Model:

The Business Model explains the specific benefits for the customer. It describes the resources that are needed to produce, promote and bring these benefits to customers while maintaining an ongoing returns and profits.

 The business model for the company can be developed using a framework comprising the following major perspectives

  • Infrastructure
  • The Product or Solution Offering
  • The Customer
  • Finances

 Infrastructure comprises the core capabilities of the company, various value configurations and the   partner networks, if existent. The value configuration explains how all these work together to deliver the end customer value. The important components, processes and resources need to be detailed.

The Offering describes the unique advantages that accrue to your customers and is described earlier.

The Customer perspective elaborates on the intended customer segments and why the product would appeal to them.  Customer relationship needs to be evaluated carefully particularly if it is ongoing. The selection of distribution channels is also dictated by the type of customer relationship that is desired.

Finally, the Finances are important and cover the cost structure and revenue streams.  Here one balances the price structure with the sales volume and cost.

The article touched upon the tip of the iceberg. You would need bit of market research and ability to understand the customer wants/needs to apply these concepts successfully.

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