What do most product managers do whenever their product sales start to decline? No matter if it’s because customers have lost interest or if it’s because a new competitor has just shown up, we all tend to do the same thing:slash our prices. In the new competitive global marketplace this doesn’t work any more. It’s time for some new thinking on how product managers deal with prices.
Why Not Slash And Burn?
Isn’t lowering your product’s price one of those classic techniques that they teach everyone in those expensive MBA programs? I mean, if you can lower your product’s price for long enough you can probably drive your competition out of business and then you’ll have the whole market to yourself. Ta-da!
This may sound like a plan (a bad plan, but a plan nonetheless), but it turns out that there are very few companies (except perhaps WalMart) that can actually pull this kind of “everyday low prices” thing off. The rest of us generally just end up hurting ourselves when we cut our product’s price in reaction to some market forces.
What’s A Better Way To Compete?
It turns out that some very smart people, Dr. Frank Cespedes being one of them, have been studying this very problem. What they’ve found is that for the rest of the world (that means you), a much better way to compete just might be to raise your product’s price.
Your customers are looking for solutions to their problems. If your product is the one that delivers the best solution, then they will be willing to pay a higher price for it. This is what is called “competing on performance”.
How Can A Product Manager Compete On Performance?
In order for a product manager to user the concept of competing on performance in order to allow his / her product to command a higher price in the market, what Dr. Cespedes says that we need to do is to change the type of battle that we are willing to enter into. Instead of trying to compete on price, he says that we need to shift and instead change things so that our product is competing based on what our company does better than anyone else.
Its these strengths, our unique benefits, that lie at the heart of our product’s long term success. This isn’t going to be easy for you product manager. Instead of trying to figure out just how low you can drop your prices, what you really need to be doing is spending your time finding ways to reshape your product so that it better meets your customer’s individual needs.
Keep in mind that this doesn’t mean that your product’s price is not important. It still is. As the product manager you are responsible for keeping your costs under control as well as making sure that the price that you are charging is a reasonable price.
What All Of This Means For You
Trying to compete and dominate a market based solely on a product’s price is a fool’s quest. Yes, there are some firms that are able to do this; however, they have built their entire business around keeping prices low. If your firm doesn’t have this engrained mind-set, then you need to find a different way for your product to be successful.
The key to your product’s long term success is to walk away from the very notion of trying to compete on price. Instead, take the time to understand how your customers view your company. What is it that you do differently than everyone else? How can you leverage this characteristic into a part of your product offering that will make it unique and allow you to command a higher price?
This approach to product pricing requires product managers to do your homework. Sure the old way seemed easier, just keep dropping your price until you get enough customers, but since that will no longer work you need a new tactic. Competing based on performance just might be your ticket to long term product success…
– Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World Product Management Skills™
Question For You: What kind of company characteristics do you think that customers would value and would allow you to charge a higher price for your product?
Click here to get automatic updates when
The Accidental Product Manager Blog is updated.
P.S.: Free subscriptions to The Accidental Product Manager Newsletter are now available. It’s your product – it’s your career. Subscribe now: Click Here!
What We’ll Be Talking About Next Time
If you want to sell a lot of your product, where is the best place to try to sell it? Would it be better to go to a crowed market where there are lots of people but also lots of other product managers with similar products? Or would it be better to go into a dark alley where there are fewer people, but also fewer competing product managers? If you can answer this question, than you’ve got that “long tail” thing down cold…