If you designa better mousetrap, charge a lot of money for it
I just finished teaching a graduate course in marketing. This is a required course for all MBA students so I get a wide range of students – some that are interested in marketing and want to make better products, some that are scared to death marketing, and some that just want to make it through the class.
As part of the course, students have to develop a marketing plan for a product/service of their choice. On the first night of class, I go around the room and ask the students what their product/service is, who their target audience is and how they will “position” it in the market. Positioning refers to how they will stack up against their competition.
The answer I get to the positioning questions is the same from 100% of the students. “I’m going to make a better product/service verses my competitor and sell it for less.”
I’m always surprised by the consistency of the answer. (I’ve taught this course before with similar results.) But what’s even more interesting is that I get a similar answer from many businesses that I talk to.
So as a business, how do you turn this around to say “I’m going to make a better product/service verses my competitor and charge more money for it.” There are 3 key elements to consider: Quantifying the value delivered to your target market, defining your value verses the competition and communicating the value that you are delivering.
1. Quantifying the value delivered to your target market. The first step in this process is to identify your target market. This is another area that students (and many new businesses) give a consistent but wrong answer. (They all claim that their target market is everyone in the world.) The economic buyer who will actually do the purchasing needs to be in this target market.
Then it’s critical to quantify the value you are delivering. If it’s a B2B product, are you able to increase your customers’ revenues or lower their costs? Can you translate that revenue or savings into actual dollars? Can you translate that into reduced risk? If it’s a consumer product, are you delivering something that provides value? For example, a granite countertop in a kitchen adds both emotional value to the owner and an increase in the value of your home.
2. Defining your value verses the competition. Buyers today are savvy and have a lot of information at their fingers thanks to the internet. What will convince your customer to buy your product? What will convince your customer to pay a premium for your product?
3. Communicating the value. It doesn’t do any good to have a great value proposition if no one knows about it. This value needs to be communicated to customers, the sales teams and executives.
I am pleased to say that at the end of eight weeks, all my students were able to crisply define their target market and deliver a marketing plan that focused on premium pricing.
For more information on pricing, see my other blogs here or at www.pricinggurus.com