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I have been closely involved in setting pricing and seeing its effects for some really diverse set of industries
- education
- ecom services / food delivery
- smartphones
- hardware components
It has given me a really important insight into "value" and "pricing"
thread
- education
- ecom services / food delivery
- smartphones
- hardware components
It has given me a really important insight into "value" and "pricing"
thread
So first of all, yes there are some industries where generic pricing/value logic does not straightaway work. For example healthcare. Even education to a degree
Only until thing get commoditized and people are buying like B2C ecom customers - lab tests via 1mg or online courses.
Only until thing get commoditized and people are buying like B2C ecom customers - lab tests via 1mg or online courses.
The way pricing/value mindset applies to buying smartphones, exact same mindset is applied by people when they are buying online courses or booking a lab test.
When deciding a school for their children, or picking hospital for surgery, maybe not.
When deciding a school for their children, or picking hospital for surgery, maybe not.
Anyway, coming to actually pricing items. There are roughly three ways you can price things competitively, which reflects 3 schools of consumer thoughts
1. high end
2. cheapest possible
3. best-value @ midrange
1. high end
2. cheapest possible
3. best-value @ midrange
1 and 2 are easy. Either you want to just compete on price, undercut everyone and sell the cheapest thing that meets the minimum requirements, or you want to make the item with all the possible features and bank on Veblen mindset customers and price it highest.
It depends on what is your strength. If your strength lies in quality, go for (1). When you have 100% belief that anyone else cannot match you in quality. Apple has done this consistently and become the most valuable company on earth.
If instead your strength lies in your business processes, your margins, and your scale - then go for (2) - kill everyone simply by undercutting their prices. You can do this if a) you have deep pockets or b) really can profit despite razor thin margins. Amazon is the best example
The real challenge does come with pricing in the mid range. Because there is no single playbook to play this with.
You can say you are almost as good as the high end at half the price (ex. OnePlus).
Or if you are a cheap player already, you can grow into the mid range slowly.
You can say you are almost as good as the high end at half the price (ex. OnePlus).
Or if you are a cheap player already, you can grow into the mid range slowly.
But regardless, one thing I have realized in all these years, there isn't as such a "market" for mid range.
It is either
a) people with high end desires but budget constraints
b) traditional cheap item buyers, with a little loose purse today to go a little up in value
It is either
a) people with high end desires but budget constraints
b) traditional cheap item buyers, with a little loose purse today to go a little up in value
The thing is, in the mid range you cannot sell your product in absolute terms.
You have to argue that either
a) This is as good as #1 but at half price; or
b) This is almost 2x better than the cheap items, but only at 15% more price.
So essentially you play the 'value' card.
You have to argue that either
a) This is as good as #1 but at half price; or
b) This is almost 2x better than the cheap items, but only at 15% more price.
So essentially you play the 'value' card.
There are a couple of challenges in the mid range.
1) when the low end catches up on value, you need to quickly move up
2) when the high end moves up in features, you need to incorporate most of them too
1) when the low end catches up on value, you need to quickly move up
2) when the high end moves up in features, you need to incorporate most of them too
And the worst thing is there is no real "loyalty" that you can eke out of your customers in the mid range.
1) Those who desire #1 but are buying you for budget constraints are "loyal" to #1. You are just the imitation affordable today.
1) Those who desire #1 but are buying you for budget constraints are "loyal" to #1. You are just the imitation affordable today.
2) Those who paid a little bit more than the cheap tier, just for the little extra features, will keep on expecting infinite returns from their 15-20% extra expenditures, and keep reminding you that there are many cheaper options out there.
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