- lowering price in reaction to competition (long-term or short-term),
- start high then lower,
- start low then raise,
- change your prices over time as your product becomes less competitive.
Pricing strategy that costs you less
Here’s the problem with traditional pricing strategy: it almost always costs you more than it gains.
Why? Because traditional pricing strategy works off of a belief that you can’t get what your product or service is really worth. The basic assumptions behind almost all pricing strategy are that 1) you must react to competition with your pricing, 2) you must “buy” initial customers and then make them loyal, or 3) you must anticipate that you will have to lower your prices in the future.
With the Alpha model, none of those assumptions are true. In fact, those traditional assumptions force you into a self-defeating model that decreases your profitability and make you vulnerable to even further profit decreases in the future.
The basic traditional approaches to pricing strategy are:
Notice a trend? They all involve lowering your prices. That means the actual value of your product is being paid to someone else… not you. (Unless, of course, you were silly enough to allow the value of your product to decrease out of neglect, and then you are getting exactly what you deserve.)
Imagine instead being able to charge 25% to 100% more than your nearest competitor can charge for essentially the same product or service. Your customers are so excited about what they experience that they bring you new customers who are also willing to pay your price to get what you offer. And then imagine further that, as your competitors slowly react (non-Alphas rarely understand what it is you are doing that is working), you just keep increasing customer expectations. And you do that with things that cost you less than the expensive discount promotions your competitors use to draw customers away from you. That’s the result of using the Alpha model.
The key difference is that you are not selling a product or service. You are selling answers to people’s deep-seated aspirations and emotional desires. You are overcoming their silent fears (the unstated ones your competitors have never heard their customers reveal). You are fulfilling their need for satisfaction and significance. You are making them feel better about themselves, their control over the world around them, and the way they believe other people perceive them.
An example? Do you really think an Apple computer is “worth” two to three times the cost of a PC? Is the iPhone worth more than an Android? From a basic technology or functionality standpoint, possibly not. But millions of people do, and they have made Apple one of the few large Alpha companies left.
Apple is an Alpha, because they provide such a feeling of well-being and control and such an experience of personal satisfaction and significance that most people don’t care what the product costs. Mercedes Benz used to do the same thing, until they started “competing” in the marketplace. Mercedes, like Apple, was able to avoid price battles, because they provided the satisfaction and significance that customers would pay almost anything to get.
WalMart is an Alpha for the same reason. (No, I have not forgotten that they market themselves as the “low-price” option). WalMart is actually not the lowest priced provider, but it does successfully convince more than half of all Americans that it is the smartest place to buy what it sells… so most people don’t even comparison shop them.
What most people refer to as “pricing strategy” is not strategy at all. Strategy is not about reacting. Tactics are. Pricing strategy should be about creating such value that you can continually experiment with just how high you can price your product and still have people recommend you to their friends.
With pricing tactics, the issue is always how high or low can you go and still survive to beat your competitors. With the Alpha model guiding pricing strategy, everyone else wastes their resources trying to figure out how low they can go to survive against you.
In the end, the Alpha (who satisfies customer needs best) has the resources to do more. The competitors (who don’t satisfy customer needs as well) have less.
Sounds like survival of the fittest to me. What about you?