Management consultancy & finance

Beyond Pricing

For many first time entrepreneurs, the selling price of their products and services is the first differentiator they think of to compete in business. However, price is not all there is when it comes to selling offerings. The inclination for most of these entrepreneurs is to decrease their price (or begin with a low price) to penetrate the market, but pricing of a service or product should stem from particular processes or systems with other factors like quality of the product, consumer process, and brand image being put into consideration.

What us as entrepreneurs will be diving into is not a question of solely pricing, it is about the total value proposition, and more-over the connection between the different factors. Think about this, how can a market entry promise better quality, good customer experience and a lower price? It cannot rely on an outstanding brand image, as there is none, and an improvement of quality and customer experience cost money. If that doesn’t make sense then better yet, what makes you think that your business model could be more successful than those competitors who have already been in business for many years? These competitors analyzed the market for years to improve profitability and sustainability. When it comes to market entries the whole picture should be outlined and well connected, from the business perspective and the perspective of the customer. This is why understanding the value you are bringing to the market and the time it takes for the market to recognize and reward your effort is important.

What is the value you are offering?

The businesses that stick around for the longest time are those that solve problems. Most businesses that grow exponentially are solutions to problems whether individual or systemic. The more urgent or painful the problem, the higher the value you get from solving that problem. Each business should evaluate and see its position in whatsoever sector it is in and determine its value.

Let us use an example of someone selling milk at a market. The value of the milk can differ during the day to the customer and to the seller. In the morning, the buyer may want fresh milk (the freshness denotes quality), therefor the seller increases the selling price as the buyer is willing to pay more for fresh milk. The value for both seller and customer could keep changing during the day as the circumstances vary. The quality of the product could reduce during the day, demand could increase at certain times, and there could also be changes in rest value and logistics. See the image below for emphasis:

Designing the solution: Combining quality and experience

The solution that a business provides through offering a product or a service has to provide a unique experience and should have a degree of excellence. This is easy to identify in the process of creating the product. When a particular solution requires a product, it should have a particular standard it holds itself to. This is called quality. A product of superior quality, entails higher value and attracts a customers that seek that higher value. Combining the superior quality with the right image provides a unique experience for the customer, this is part of sales and marketing.

Using the same example of milk being sold at the market, if the seller finds a way of keeping the milk fresh throughout the day, he could maintain a high price as the perceived value would also be higher to the buyer. Even better, the seller could find ways of getting the milk to the buyers with ease by providing delivery services or have them pre-order for the fresh milk and like that the price could also be high as the buyer is assured of quality milk each day.

Distributing the solution: Channels and Networks

When you have designed your solution and combined the quality with experience for the customer. You need to think about the distribution channels and networks through which the customer will get your product. These channels could either be through retail or wholesale mainly for products. The way of distribution is also determined by the people whose problem you are solving. You want them to easily get your product or service.

Pricing the value you give

The price you put on the product or service you create can be determined in a lot of ways. You either look at the process of creating the solution and the distribution channel. If it cost you less to design and distribute the solution, then your price could be less than those of your competitors.

Key take-aways:

  • Look beyond pricing when it comes to competing on the market
  • Define the problem you are solving and you can predict the perceived value you are providing to a customer
  • Increasing quality of the product and improving the customer's experience will increase the overall value of the business and will be costly as well
  • How you distribute your product is as key as the process of making it.

If you have questions or a need to improve your value proposition, give us a call or drop an email.