Kedar Gharpure shares an article on the segment-specific approach to pricing.
#Price can often be the first casualty as companies compete in markets shrinking due to #COVID19. However, now more than ever, it is essential to compete on value and not just on price.
To compete on value, it is essential to understand what do your customers need. But do all your customers have the same needs? Do you only prioritise the needs and requirements of your largest customers when building your product and service propositions?
A pre-requisite to compete on value is a sharp understanding of your various battlefields
B2B companies typically segment their market based on their sales or customer size. But a sharper segmentation is one that is driven by aspects beyond size such as such as customers’ needs, customers’ footprint, customers’ position in the value-chain, market access channels etc. Building a sharper segmentation helps companies to tailor their proposition and tailor their cost-to-serve to each segment and avoid a race-to-the-bottom with price.
Dow Corning identified an emerging cost-conscious segment in the market, developed a differentiated proposition for them and avoided a race-to-the-bottom with price
Consider this example from the silicone industry. Profit margins for many mature products in the silicone industry had been declining for nearly a decade starting in the late 90s. This was due to several factors such as increasing competition, unfavourable legislation and commoditisation of products. To improve the price and margins, Dow Corning and its competitors had adopted the approach to add more and more value-added services with its silicone products. However, a detailed customer analysis by Dow Corning revealed that a large and an emerging group of price-sensitive customers did not really want the value-added services or high-touch sales relationships. As a result, they were pulling the prices down for the entire market.
Instead of a race to the bottom with its prices, Dow Corning introduced a different brand (Xiameter) through an online channel. Here customers could bulk order some of its most established products without the added services and with no interaction with an employee – but at a lower price. This model meant a lower cost-to-serve for Dow Corning. At the same time, Dow Corning continued to serve its other customers who valued the service, technical support and innovation through their Dow Corning brand. This tiered pricing and value proposition allowed Dow Corning to target a much broader part of the market while protecting its profits.
Key points include:
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Tailoring value
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Sharpening customer & prospect segmentation
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Avoiding a race to the bottom
Read the full article, Segment-specific approach to avoid a race to the bottom with price, on LinkedIn.