How can you maximize profits when everyone is racing to the bottom of the pricing scale? Consider the value you can offer beyond quality, service, and price.
Their midlevel product was several dollars more expensive and compared more favorably to the same product from competitors. In other words, it was a better deal for the price. Their product offered more features and benefits for pretty much the same price set by the competitor.
Finally, their upper-tier product was markedly better than the competitor’s for the same price. For both the mid level and higher end, the margins were much, much better. The strategy was to move the customer to the higher value product because of the increased value for the money compared to the competitor. At the low end, the value was the same, so they would lose sales to the competitor at about the same rate as the won sales.
For the mid level, they would win about 35%-50% more often. And at the upper end, they would win the sale 75% or more of the time. It wasn’t that the customer wanted the more expensive product, it was that it represented such a great value compared to the competitor’s product. They did not want to risk missing out on this great value. I guess this played on the human greed factor.
Here is the really tricky part of all this. Through careful engineering, the actual cost difference to manufacture these products was about 25 cents between the low end and the high end. Yet the perceived difference was more than $5.00, and this resulted in a selling price almost 50% higher. It offered the opportunity to give WalMart more margin points, and they sold more product at this higher price than the stripped down version at the lower price. Both buyer and seller made more money, and the consu-mer was really happy with the great deal they got.
This didn’t happen by accident. It was carefully designed to work this way. Since the competitors were so focused on cutting, cutting, and cutting, they had no room to create greater value. A change in point of view enabled my friend to define new value points that were layered on top of each other to create something truly special in the consumer’s eye. It was so apparent which was the greater value that the sale was almost automatic, especially for the price shopper who compared based on price point only.
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