Mastering Pricing Strategies, Crafting Experiences, and Buyer Value
Unravelling the Blue Ocean Strategy’s Secrets for Business Triumph
Beyond the fierce battleground of competition lies a strategic symphony that encompasses buyer utility, user experience, and astute pricing maneuver's.
Now let’s give credit when credit is due: The concepts, I am about to tell you are my notes of the blue ocean strategy (very nice book, I recommend reading it).
Starting with Buyer Utility and the Problems of Product-Centric Thinking:
In the pursuit of innovation, companies can fall into the trap of being obsessed with their product’s features (especially the case in the tech sector), neglecting a very important aspect — buyer utility.
The allure of bleeding-edge technology may interest innovators (product developers), but unless a product translates its technical prowess into tangible value for buyers, it risks selling nothing in the market.
- Example: The Philips CDI Saga
Let’s examine the tale of the Philips CDI, a multifaceted marvel of video, music, and gaming. Despite its technological brilliance, a lack of user-friendly interfaces rendered it an enigma for consumers.
The technology trap, where bleeding-edge features fail to deliver buyer value, led to meagre sales. The lesson here is clear: utility should drive technological innovation, not the other way around.
Navigating the Technology Trap:
To escape the technology trap, the focus should shift from showcasing technical possibilities to developing products that genuinely resonate with buyers (increase buyer value).
Two indispensable tools in this quest are the Buyer Utility Map and the Buyer Experience Map. These tools unravel the intricacies of how to increase buyer value, enabling companies to align their offerings with genuine value propositions. (just answer the question’s in the map’s)
Buyer Experience Map: Crafting Seamless Journeys (series of buyer utility questions)
Buyer Utility Map: Navigating the Landscape of utility (series of buyer experience questions)
Now strategic Pricing
Traditional pricing strategies often follow a trajectory from high initial prices targeting price-insensitive early adopters, eventually descending to attract the broader market. However, what they should do is they should find a price that quickly gets to the mass of target buyers
Why: 3 reasons
- Shift in Product Nature: As products become more knowledge-intensive, development costs surge, overshadowing unit manufacturing costs, like making apps
- Network Effect: Buyers tend to value products more as more people adopt them, emphasizing the need for a substantial user base.
- Legal Protection and Imitation: Some ideas lack legal protection, making strategic pricing crucial to deter imitators. for example Virgin Atlantic airlines for the first time combined huge seats and legroom at the price of business class competitors could legally apply this idea
(Do you agree what companies are doing is wrong when it comes to strategic pricing, I would really love to hear your thoughts and opinions on this.)
So now you have to strategically price the product so that the product quickly gets to the mass of target buyers while simultaneously discouraging competitors, for that you could use a tool named
Pricing Corridor of the Mass Audience
Strategic pricing steps
Step 1: Identifying your product’s Alternatives and Substitutes (I’ll explain how to in a minute)
This will help managers to see who their potential customers are
More on that here
and then graphically plot (draw) the price and volume as shown in the Image: Pricing Corridor of the Mass Audience
Now substitutes might wear different labels (different forms), but they are serving the same core utility in other words they’re serving up the same old thing. they are substitutes for each other.
- Substitute Example: Pencil or Pixel
In the finance game, people craft their money moves in different ways — fancy software, a CPA lifeline, or going old school with a trusty pencil and paper. Different forms, same core utility: managing those bucks.
Alternatives, though? They may look very different (different forms and functions) but they have the same purpose. alternatives are a broader industry in comparison to substitutes let me give you a example
- Alternative Example: Your Two-Hour Escape Plan
Imagine needing two hours of pure bliss. What’s your move? A theater escape, a soothing massage, or perhaps diving into a captivating book? they all have the same purpose
So what step one will do is that it will provide a way to identify where the mass of target buyer’s are and how much they are willing to pay for the product’s and services they currently use,
The price bandwidth that captures the largest group of target buyer’s is the price corridor of the target mass in other words the price that most of your soon-to-be customer’s will be willing to pay.
Step 2: Discouraging Competition
There are 2 points to keep in mind about your product
- Legal Protection: Degree of legal protection, e.g including patents.
- Exclusive Assets: Ownership of exclusive assets or core capabilities e.g expensive production plant
Companies must evaluate these two points to determine the pricing boundaries within the corridor.
If these two points are Strong you could do high pricing, while uncertainty suggests a mid-range approach. Lack of protection recommends staying within the lower boundary.
It would be wise for companies to use the lower boundary in the price corridor if the following apply
- Marketing Reliance: Heavy reliance on marketing strategies.
- Economies of Scale: Sensitivity to economies of scale affecting production costs, so pricing according to where you will get the mass is the key
- Cost Structure: High fixed costs and marginal variable costs.
The strategic pricing choices should align with the specific circumstances of each business, Companies heavily reliant on marketing, influenced by economies of scale, or dealing with high fixed costs and marginal variable costs would benefit from pricing that targets mass volume.
Conclusion
As we navigate the strategic horizons, inspired by the Blue Ocean Strategy, the emphasis on buyer utility, seamless experiences, and tactical pricing emerges as a guiding compass.
Unleashing the true potential of a product goes beyond technical dazzle — it hinges on understanding and catering to the genuine needs of buyers. Strategic pricing, when carefully calibrated within the price corridor of the mass target audience, becomes a powerful tool to not only attract a broad consumer base but also thwart potential competitors.
Dear reader, (Reminder)
Do you agree what companies are doing is wrong when it comes to strategic pricing, I would really love to hear your thoughts and opinions on this.
Thanks and regards,
Raihan Mohibi
