Premium Offer against Low Priced competition
by Kostas Voutsinas|
Nowadays, due to increasing competition buyers focus more and more on cost cutting. Suppliers provide lots of products and services at low price to satisfy buyers’ expectations. However, for many companies low priced competition is meaningless and risky. On the other hand, according to Porter’s Generic Competitive Strategies, to set a high price one should differentiate the product and develop a position far from commodity.
It is needed a total approach that differentiates your product or services based on your competitive advantage, a Premium Offer.
There are four elements that contribute equally in developing a premium offer.
- Offer and Price
- Service Alignment
- Quality Standards
- Sales Excellence
- DEFINE OFFER AND PRICE
Does price determine your position at the market? The answer is no. However, we shouldn’t underestimate that many buyers consider low price as the main criteria when buying, whereas others feel more confident with their suppliers when price is high. Once the price reflect a competitive advantage then a higher price is acceptable. Some brands are identified with premium price like Rolex, Mercedes, etc. So the question that rises is: Can I support a low price or Should I define and develop a competitive advantage to differentiate my product and set a higher price?
When you choose the Premium Price policy then you have to formulate your Offer. Offer is what you are capable to provide your customer as a total, is the product and the services and the benefit. It is also your position in the Market. Practically, there are three different Main Strategies:
- Choose a Niche of the market, become an expert
- Develop a Customer Oriented Organization
- Create an Added Value for you clients that influence his business or a concrete advantage
Once you decide the strategy of your offer, you should align Services, Quality & Sales Force
- DEFINE YOUR SERVICES
From a helicopter point of view services at a certain industry looks almost the same. Nevertheless clients’ expectations are not. Clients expect different response when dealing with a “Niche/Expertise Offer” and different from a “Value Added Offer”.
- If you choose a “Niche” at the market you are probably an expert/specialist. Your customers expect a solution oriented approach and expertise. They also expect operation acumen and innovation.
- At a “Customer Oriented Offer” your customer probably expect tailor made solutions, quick response and skilled people on services. Furthermore, they expect a secure environment & a trustfully cooperation. Trust is the platform on which he will develop his competitive advantage.
- At a “Value Added Offer” client expect profound knowledge of his industry and capability to provide total solutions. They await a consultative approach, a capability to search opportunities, support their competitive advantage and/or to create excellence at their organizations.
- Services should be in alignment with the nature of your offer and customer expectations. Services support your product and justify your price. Thought your customers should feel and understand the differentiation of your Offer.
- SET QUALITY STANDARDS
In a completive market even “low price” players set a minimum standard in quality. Quality doesn’t mean perfection. Quality is relative and is the proper mix of product, person and resources that work together to meet your customer expectations. It should be in alignment to your offer and it involves all stakeholders. Quality doesn’t provide results; it is a set of criteria and KPI’s that ensure a long term development of your competitive advantage.
The latest approach of McKinsey concerning Organization Health provides a profound and practical analysis that comes very handy when setting the qualities standards. The most important points are:
- Accountability: Who is the responsible from each activity? How he contribute to the completive advantage and to your Offer?
- Capabilities & Resources: Capabilities of persons and capabilities of team. Reassure that your resources can support your plan. Give time to people.
- Leadership & Coordination: Credibility is the most important element for a leader. It also important to be able to change hats from an inspired leader to a tactical manager and a smart coordinator.
- Culture and Climate: Once you decide to have a continuous improvement on your offer you need a continuous flow of information, ideas and persistence. A customer oriented culture, a sense of urgency and a safe environment that motivates people is prerequisite for success.
- Your Service and Product: Quality of the product you provide is a prerequisite for success. However is not perfection. It is more important to stadarise your product and your services so that our customer receives the same outcome and the same benefit.
- DEVELOP SALES EXCELLENCE
Let’s also make it clear, Excellence doesn’t exist. What you need is a customer oriented organization and the right salespersons which mean that their knowledge and skills are in alignment to your Offer.
Sales force is much more that service. They design the premium image on customers’ mind (psychological side) and built with logical steps you price level (business side). The sales approach is depending on your offer.
- A low price offer goes along usually with transactional sales approach.
- If you choose a “Niche” the sales approach is less transactional, more assertive and consultative where needed.
- To foster a “Customer Oriented Offer” the approach is more relational, more consultative and no transactional.
- A “Value Added Offer” needs a consultative and trustful approach. It also need to build relation with executive level buyers