How to Provide the Best Price Without Endangering the Business
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The existence of a new or small-scale business will be visible with careful observation when there are two or more competitors. The existence of competitors will change the way you organize your business. In an effort to get one step ahead, businesses will tend to adopt various competitive strategies to increase their competitive advantage.
In business competition, one aspect that is very visible is price wars. Price is not only important for consumer needs, but also for business continuity. For this reason, it is important to be able to provide the best price in the following ways:
1. Grouping Consumers Based on Purchasing Power
Basically consumers are divided into three different market classes, namely upper class, middle class and lower class. Each class has different perceptions and paying abilities. Competing based on price is a quite effective tactic to be at the bottom of the competition level.
If you set your prices lower in reaction to discounts from competitors, you will automatically serve the lower end of the segment. Setting a lower selling price (underpricing) is quite difficult to do because there is little room for profit margins.
The more you lower your prices, the more attractive your offer will be to the lower end of the target market (the majority of the market) and the less attractive it will be to the middle and upper class. If your ideal target is the lower class then that is in line with your business goals, but there is no harm in targeting the space at the top.
2. Retarget Audiences
In the eyes of customers, price is often considered to reflect quality, quality is considered lower when the price is lower. If it is impossible to reduce your costs while maintaining a satisfactory level of profit at lower prices, then one way is to retarget your consumers. This will position your goods or business for wider appeal in a particular market segment.
This is when comparative value becomes something that can be discussed next. Creating perceived value can make it easier for customers to choose your business's higher prices, and may very well convince them that your higher-priced offerings are worth it. Your business may choose to embrace a psychological approach to fulfill that idea.
3. Carry out product differentiation
Research conducted by Dan Ariely is a case example in terms of comparative value. The following is an illustration carried out by a well-known magazine by offering three subscription packages:
- Website Subscription IDR 60,000
- Print Subscription IDR 100,000
- Both subscriptions are IDR 100,000
Ariely conducted research with 100 students as participants with 16 choosing the web option and 84 of them choosing both subscription packages, none of them chose the print subscription. At this point, you may have concluded that the print subscription option has become useless.
In the next experiment, Ariely removed the second option and presented the remaining two options to 100 students who were different from the previous group. The results showed that the previously least popular option, namely web subscription, became the most popular in this experiment with 68% of students choosing this option.
Based on this research, the middle option is not useless because having the second option will help consumers make choices. Consumers often find it difficult to compare competing products, making them easily influenced by many other things. If product choices have almost the same price, it will make it easier for consumers to choose products based on the value they can feel or see.
Another way to gain an advantage over competitors is to choose competitive prices. By considering what your competitors use and calculate, you can increase or decrease the prices of your products according to their prices. You need to understand when to adjust prices and how often to do so.
There is also the option to use dynamic pricing, i.e. prices are never set firmly. Prices change continuously to suit market conditions that are always fluctuating. There are various possibilities for your business to provide better prices than your competitors. But only through an in-depth evaluation of your business and your business competitors can you determine the best price for your product.
Providing better prices requires a dedicated effort to find the sweet spot of highest prices. This is a constant process because the market is never in one place, so you have to constantly monitor prices and business competition.
This can be done by conducting research which will then produce a lot of data so you can determine the best price that suits your target market. The Marketing Pricing Strategy program is organized based on the same principles. The importance of correlation between aspects of market competition, consumers and cost elements increases the weight of the challenge so that skills and appropriate decision making are needed in setting prices.
