Times are tough. Your product, your baby, is struggling. New competitors are showing up in your market with lower cost alternatives. Try as you might, your sales teams are just not having any luck convincing your customers to shell out the extra bucks for your Cadillac product. What’s a product manger to do?
Lots of product managers attempt to deal with low cost competitors by cutting the price on their product. This can be a big mistake. Rafi Mohammed who wrote The Art of Pricing: How to Find the Hidden Profits to Grow Your Business says that once you start to do this, you’ll end up devaluing your product. Once things get better, you may find that you can’t raise your prices.
How about introducing a new product – a price fighter? Yes, that might seem just a bit counter intuitive right now to launch a new product, but it just might save your bacon. A price fighter product is a low cost version of your standard product. The key is to sell this product under a different name so that your customers don’t get confused.
You are are already aware of lots of other firms that are currently using price fighters:
- Procter & Gamble: premium product – Pampers, price fighter – Luvs
- Delta Airlines: premium product – Delta, price fighter – Song
- Anheuser-Bush: premium product – Budweiser, price fighter – Bush
The list goes on and on (Black & Decker / Dewalt, Sony / Aiwa). Price fighter products do two things: they allow you to preserve the pricing that you use for your premium product (while still allowing the company to make enough money to stay in business), and they take revenue away from your competition.
Reed Holden wrote a book called Pricing with Confidence: 10 Ways to Stop Leaving Money on the Table. He pointed out that if you are planning on introducing a price fighter product, then you need to move quickly. Holden points out that Motorola took their time introducing cheaper cell phones and this allowed Nokia to jump in and own that part of the market.
So what do you think? Would a price fighter product help you to maintain your product’s pricing? How would a price fighter product differ from your existing product? Once things improve, would you discontinue the price fighter or would you keep it around? Leave me a comment and let me know what you are thinking.