Premium prices limit demand?

An October 10, 2014 headline in The Hindu reads “High pricing keeps travellers off premium trains.”  Is that really the case?

The real problem

Upon reading the article you’ll discover that it isn’t the premium price itself that limits demand, it was the lack of substantiation of value that is the problem.  The author cites several instances where the price differential between the various premium options makes little or no sense given the value provided.  In some instances, there’s even a question of whether any difference in value exists at all.

The solution

Blaming premium prices is like blaming the messenger.  It’s easy, but not very productive.  Over the years I’ve seen leaders of companies adjust their pricing without exploring the differences in value between their offerings and competitors’ offerings.  I don’t know whether it’s because they believe that they already have a good handle on those differences or because they’re just being lazy.  Either way, it’s a lousy way to run a business.

The leaders of most companies could, within a half hour or so, identify ways in which their offerings are superior to competitors‘ offerings.  If you can’t do that, then you don’t know your industry very well.

Next, bring in the finance guys and it’s likely that within another half hour, you could have that value quantified – converted to dollars and cents value.  Again, if you can’t, I’d wonder whether you’ve got the right finance people.

Some of the most successful efforts like these I’ve seen involved business-savvy outsiders.  The greatest challenge that people engaged in these analyses face is the lack of objectivity.  Self-assessment is always difficult.  It’s much easier to see things in others than in ourselves. 

It’s also a natural tendency to place greater value on what others’ possess than what we have.  Bringing in outsiders with broad business experience and a value orientation can dramatically improve the results of these exercises.

Takeaway

The next time you’re inclined to blame your pricing for weak demand, employ these four steps:

  1. Explore your value proposition.
  2. Determine how it’s superior to competitors’ offerings.
  3. Calculate the dollars and cents value of those differences.
  4. Make sure that you’re communicating that value well in marketing messages and sales calls.

If you’d like some help with this analysis, don’t hesitate to call me at 314-707-3771.

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