Saturated markets = price wars? 

All that you have to do is watch the ads competing for your phone service and you know that the market is saturated.  Low-cost providers keep lowering prices to expand their customer base with premium price providers gradually following suit.  Does market saturation necessarily portend a price war?

Premium prices

One of the things that many business leaders fail to realize is that premium prices are available throughout the product life cycle – from introduction through decline.  It isn’t until differentiators no longer exist – that products or services become commodities – that the premium price option goes away.

In the case of phone service providers, there are still strong differentiators.  Verizon seems to have the broadest, most reliable network with AT&T running a close second.  These powerful differentiators mean that these providers don’t have to match the lower prices Sprint, T-Mobile and others are offering.

Of course there are customers whose purchases are driven by price.  They’ll choose the lowest-priced option and sacrifice reliability and access to get that lower price.  But for those who desire reliability and access, they’re willing to pay more to get it.  That’s a fact that business leaders in any industry need to embrace in order to enjoy premium prices in a saturated market.

Price positioning

If you’re the Verizon or AT&T of your industry, knowing that you have a pricing advantage is only part of the solution.  The other part is communicating it effectively – something that Verizon didn’t do very well.

Verizon recognizes that the market is saturated and that its price was going to have to decline to keep customers from exploring lower-priced alternatives.  It’s leadership was smart enough to know that its customers wouldn’t change for $5 or $10 a month, but the spread was nearing the $40 a month mark – a point at which the most loyal customers might consider a change.  What did Verizon do?

They offered customers (whose contracts had expired, who hadn’t upgraded their phones and were on a month-to-month billing plan) a $10 discount – no strings attached.  From a strategic standpoint, it was a brilliant move.  Give customers who are mostly likely to change for price a reason to stay.  From an execution standpoint, Verizon failed miserably.  Why?

There was no rationale for the discount.  The customer hadn’t asked for one, the service was as good as ever, so why was Verizon offering a discount?  Whenever customers are left to speculate they’re going to assume the worst.  In Verizon’s case customers might wonder:

  • Are Sprint and T-Mobile getting better?
  • Is Verizon experiencing problems?
  • Is my service going to be as good as it had been?
  • Verizon’s telling me that there are no strings attached, but there must be something they’re not telling me otherwise why would they cut their price?

These are NOT the thoughts you want running through your customers’ minds.  What could Verizon have done instead?  They could have utilized their customers’ usage information to explain the discount.  Here’s some sample wording.

“We see from your usage records that you’re not fully utilizing the (voice, text, data) component of your program.  We’re committed to providing the best value for the dollar for our customers. We’ve developed a special plan for customers like you that will save you $10 a month.  The new plan includes (what they’re using), but not (what they’re not using).  

You’ll still enjoy all the advantages of Verizon’s vast network and the reliability it ensures.  There is no contract involved, simply click on the button below to accept the new plan and save $10 per month.  It’s our way of saying ‘Thank you’ for choosing Verizon.”

Can you feel the difference?  Did any of the concerns associated with the discount arise?

Takeaway

As your market nears saturation, you still have the opportunity to get premium prices.  The key is to present whatever discount you’re offering as a way for your customers to get what they want without paying for things they don’t.  This two-step approach gives them the sense that:

  • You have their best interests at heart.
  • There is a rationale for the discount.
  • That you’re monitoring their needs and adjusting your product/service to meet those needs.

Now that’s a winning combination!

Not sure how to effect that kind of change?  Give me a call at 314-707-3771 and we’ll make it happen.

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