There are 3 price points for a product. The lowest price product, the middle price product, and the highest price product
Product and price determine your customer. A Rolls-Royce is known as a very expensive car. It attracts certain type of customer. If Rolls-Royce announced it was going to produce a low-priced model, many of their rich customers would probably start looking for another brand of car.
The example given above points out the importance of gross margin and how pricing directly affects your gross margin.
The gross margin finances your business expenses. It provides enough cash flow to cater for salaries, operating costs, marketing, etc. so, the more the margin, the higher the price of your product.
To find good customers, you must know them, match your product and price to fit their needs, wants and ego. Most times, customers’ ego is more important than their wants and needs.
How The 3 Price Points Affects Your Business and Customers
Most start-ups make the mistake of asking the wrong set of people about what they think about a product. Asking the opinion of people who will never be your customer will give you a wrong picture of what your product has to offer.
They will give opinions about what they think the price should be (a bad price of course) simply because they are the wrong set of people.
You need to find the right set of people who your product will satisfy, people who value the product and are willing to pay for it.
Better still, you should consider the following three price points for your products and determine which is best for your business.
The low-price point
Businesses that use this price point flow with the ideology that the lower the price in the market the more the customers.
You don’t need everyone to buy your valuable product; it should be for special customers (people who place value first).
Don’t go for cheap price for your product. Why this may happen is because you’re also cheap and looking at your own product through cheap eyes, rather than looking at the value in your product.
One trap to avoid and that most businesses don’t know is that, the lower you make your prices, the cheaper your customers become.
Another problem with being in the lower-priced category is that someone out there is always trying to beat you. Someone will find a way to sell the same product less than you.
To win the lowest-price competition, you have to make less and less money, which means less product margin.
The middle-price point
The worst price to be is the middle price. Nobody knows who you are. The middle price may be the most comfortable but it is also the most crowded. It will be so hard to be outstanding if you’re average.
Products placed in the middle price category by a successful business have a back up. Successful businesses that use the middle price do something brilliant that their competitors cannot do.
For example, they may have superb retailing system that allows them to make money with smaller margins.
It takes a brilliant business person to use the medium price or the lower price points, cut their margins and still get rich.
Depending on your target customers and the product that fits their needs, if you choose to use the low-price point or the middle price point, then you have to be better business person than those who compete at the top (those who use the highest price point).
High Price point
If you want to use the highest price point for your product, you must know that it is not just about increasing price, its about giving your customers something your competitors cannot give.
Try to check out high priced businesses and low priced businesses in the same line of product or service offering, for example, check out high priced car dealers and low priced dealers or high priced hotels and low priced hotels, you’ll have differences to notice and find ways to better define your own product and your customer.
Truly, the higher the price, the fewer the customers, but this guarantees precision in your marketing. So, don’t ask the poor people about what they think about the products made for the rich.
On a concluding note, don’t try to be all things to all customers. If you want high end and the low end, then start two brands.
For example, Honda has its Acura brand and Toyota has its Lexus brand. They look the same but the marketers at Honda and Toyota have done a good job to convince the public that they are selling two different cars.
Focusing on your target customers’ needs and wants, it’s not about finding the products for your customers, it’s about finding right customers for your product, after all, your current product was designed to meet the need of a certain set of customers. So, look for new customers and focus on keeping existing ones happy.
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