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Competing - using a Value-Based Price strategy

by Rick Baker
On May 2, 2012

A year ago, I wrote about Competing - Using a Low-Price strategy….the introduction was: 

At our Leaders’ workshops we tie two marketing concepts together. The two marketing concepts are ‘the PQS Triangle’ and ‘Differential Advantage’. Both of these concepts are ‘vintage’ marketing thoughts…..things we learned a few decades ago. 

PQS Triangle is a picture, designed to make it clear businesses can set its marketing strategy based on a combination of Price, Quality, and Service. Rarely, if ever, can a business succeed if its marketing strategy is designed to win at all of P, Q, & S. Put another way – it is virtually impossible to deliver the lowest Price, the highest Quality, and the best Service all at once. Something has to give. For most of our Clients the thing that has to give is Price: most of our Clients are not in a position to offer the lowest Price. 

Differential Advantage answers the question: Why do our Clients buy from us rather than do nothing or buy from one of our competitors? 

When the PQS Triangle and Differential Advantage are combined we have the essence of the marketing strategy. 

For certain businesses the marketing strategy does contain Price – i.e., the business can compete by offering better prices than their competition. 

Now, about Competing – using a Value-based Price strategy: 

Hanan & Karp expressed the concept concisely in ‘Competing on Value’.

"A value-based price has five characteristics:      

  1. Price is premium price.
  2. Price is compared with the improved profits it contributes to a customer’s business, not to competitive prices.
  3. Price is recoverable by the customer’s improved profits and is therefore an investment rather than a cost.
  4. Price is not discountable.
  5. Price is applications-specific. It varies in direct proportion to each customer’s improved profits."

This, of course, is the exact opposite to competing – using a low-price strategy.

So, the spectrum of pricing strategies goes from low-price at one end to value-based on the other end. 

Where do you position your pricing in that Price-Strategy Spectrum?


Leaders' Thoughts | Marketing | Sales

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