Pricing Strategy Part 2: The Product
Once you know who your customer is comparing you to, what they perceive as valuable, it’s time to shift your focus on the Product and the Matrix of Competitive Advantage. The Product Zone of Genius.
This is a continuation from the Pricing Strategy & Psychology - Understanding the Art and Science behind Monetisation article. Part 1: The Customer is here.
Once you know who your ideal customer is comparing your product to, what they perceive as valuable and the problem they need solved, it’s time to shift your focus on the Product.
Find your Products Zone of Genius.
Learn how to put this into practice with the Pricing and Monetisation Strategies Masterclass
Pricing isn’t just what actual price point your ideal customer is willing to pay, the elasticity of your product and what they’re willing to give up for the value your product provides them. You need to understand their perception of value in the context your product operates in.
Context Matters
Price is never just a Number.
Price signals Value.
Evaluate your product positioning compared to the competitors (or at least the competitors, substitutes and alternatives that your customer is comparing you to). Then assess the price they place on solving the customers’ problem in the context of the full product features and experience.
This is important.
Don’t compare your product and product pricing blindly to what your competitors are offering.
They may not be competitors, alternatives or substitutes that your customer is even thinking of when deciding whether to choose your product or something else.
Never Blindly Copy
The danger of copying a competitor's pricing and product packaging is that you have no data as to whether it’s even profitable or if customers value it. You have no visibility on their costs to execute or support that product. You also aren’t that competitor, so their starting point, their core capabilities may be very different to yours.
Not only that, they may be playing a different game strategically.
Are they going after market share or profitability?
Are they positioning that product as a loss leader to upsell the customer on a more strategic product?
Focussing on your target customers and what they perceive as valuable is the best starting point before you embark on what product strategy to pursue.
Questions to Ask
In light of your market and the alternatives your customers compare you to, ask yourself, is your product revolutionary, evolutionary or a me too offering. What is your strategic differentiator that is perceived as valuable.
Understand your product and it’s value.
1. Revolutionary
Revolutionary products are new and groundbreaking. You’ve invented something with little competition, innovative and 10X better than any alternative at solving the problem. It’s a category creator and is the start of a shift in the way people will solve this problem.
A recent example would be ChatGPT or AI. The Adobe Primrose dress is redefining fashion. 3D printing redefining manufacturing. Drones that can fly beyond visual line of sight and longer distance to deliver packages, avoiding traffic on roads. Solar panels that are more efficient to make, capture more of the solar energy and at end of life are safe to recycle.
These are anything that makes us stop and rethink the impact on industries, the future of work, the way we do things.
2. Evolutionary
Evolutionary products are where your product is an evolution of something that has already been solved.
These could include a car model releasing seat warmers, reverse cameras. Booking AirBnB accommodation when you travel rather than staying on someone’s couch. Driverless cars instead of booking an Uber. Organizing uber eats, instead of your local food place delivering.
3. Me too
A Me-Too product exists in a well defined category and offers an alternative to the existing players. This could be another dating site, another mortgage product, or another investing app. It feels undifferentiated because it is.
Without differentiation that is valued by your user, the only lever you have is price.
If you think your product is a me-too, get out of the building and start asking your customers why they chose you over others. Look for patterns in their response. There may be a reason, a perceived value, they see that you haven’t yet.
Once you understand your product and how your customer perceives the value of your product, compared to the alternatives (competitors, substitutes, etc), you can plot your product on the Matrix of Competitive Advantage (MOCA).
Matrix of Competitive Advantage
The Matrix of Competitive Advantage (MOCA) is a tool for identifying and articulating your product’s benefits in meaningful terms to customers compared to competitor products.
It’s based on how customers perceive the Value of Your Product or Feature
On the Y-axis, lists the relative importance of your product’s benefits to customers.
On the X-axis, rates your product’s performance against the competition – from your customer’s perspective.
Depending on where the attributes, features or experience of your product falls within this matrix, determines which strategy to adopt in your value communications,
Competitive Disadvantage
If your Product attributes fall in the Competitive Disadvantage Quadrant (top left),
be prepared to defend these product features or experiences that are worse than your competitors.
If customers place a high importance on the product features or experience, and your product is worse than the competitors your options are to either improve them or defend them (e.g. Price is too high – defend the Value included)
Competitive Advantage
If your Product attributes fall into the top right, Competitive Advantage then you’re doing well.
Emphasize the benefits your product delivers that are perceived as most important to the customer AND that competitors can’t match
That’s your competitive advantage and a strong Monetisation Opportunity
Over Performing
If your Product attributes fall in the bottom right quadrant – it’s Over-Performing. Customers perceive these features of low importance, yet better than competitors.
Your Options are to either educate customers on the value (and lift the importance for a certain segment) or don’t waste your time.
Because this is a differentiator no one cares about (non competitive advantages)
Consistent
Similarly if your Product attributes fall in the bottom left quadrant, well, it’s Consistent.
The product features or experiences are perceived as being worse than the competitors and of low value to the customer.
These are Wasted Effort and Opportunities to Cut – But only if you have time.
Product attributes to exit.
I’ve helped multiple organizations take a deep look at their products' features and experiences to identify what customers value and are willing to pay for and what to exit all based on customer perception and their willingness to pay. Knowing what is valued allows you to take the next step and identify what Pricing Strategy to pursue.
This is a follow on from the Pricing Strategy Part 1: The Customer article.
Next up is Pricing Strategy Part 3: Strategy.
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Learn how to put this into practice with the Pricing and Monetisation Strategies Masterclass
Want to know more about Pricing Strategies and what’s the right one for your product and context? Drop me an email at irene@phronesisadvisory.com