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Analysis 38: Definition of Price Points in the Market

EXHIBITS:

HOW TO INTERPRET THE ANALYSIS: This exhibit portrays three Price Points in the market. The first column names the Price Point. The second column lists the benefits of the Price Point. The third column lists some of the competitors' products at each Price Point. And the final column shows the price of each product indexed to the Standard Leader Price. The Standard Leader product in the marketplace would be represented in this market by Huggies Steps and Pampers Phases. Each of these products would have, as standard benefits: national advertising, national couponing, three stack height, four different sizes and gender specific diapers. At the higher, Performance Leader, Price Point are Huggies Supremes, at a 20% price premium over the Standard Leader product. For that price premium, this product offers Velcro fasteners and a cloth feel.

PURPOSE: This analysis groups price points in the marketplace according to their price and benefit levels. It is the first step in the company's evaluation of the profitability and growth rate of product types in the market and in its subsequent decision on whether to offer particular price points.

APPROACH: The Performance Leader price points are those offering higher performance for higher price than the industry average. Standard Leader price points offer the industry standard performance and price in the marketplace. The Price Leader price points are those products that have a lower price and lower level of benefits than the standard in the industry. A Next Leader price point may also exist in some industries. These products offer a performance level that is better than standard for a niche segment of customers in the marketplace. Next Leader product prices are usually lower than the standard price in the market. Many industries will have Performance, Standard and Price Leader products. Few industries will have Next Leader products.

The Standard Leader product is that which sells the highest unit volume in the marketplace. That product need not be the majority, that is, more than 50% of the units sold in the marketplace, only the product with the highest number of units. In most industries, those products priced within 7% of that standard industry price are also Standard Leader products. Performance Leader products offer more benefits for prices beginning about 7% over the Standard Leader products. Price Leader products offer substantially fewer product benefits for much lower product prices.

Examples of:
Performance Leader » Next Leader » Standard Leader »Price Leader »Industries With Four Price Points »

Return to Diagnose Products and Services: Four Price Points


Recommended Reading

For a greater overall perspective on this subject, we recommend the following related items:

Analyses:

Symptoms and Implications: Symptoms developing in the market that would suggest the need for this analysis.

Perspectives: Conclusions we have reached as a result of our long-term study and observations.

  • "Attention K-Mart Copiers"
    To match experienced price competitors, management must be realistic about what a low cost and low price strategy really entails. (1987)

  • "When Product Mix Matters"
     There are several price point specialists. Some are better positioned than others for long term success in a hostile market place. (1991)

  • "Why Do Leaders Lead?"
     There are four potential kinds of leaders in the marketplace. In order to be successful, each must follow its own particular rules. (1986)

  • "Success Under Fire: Policies to Prosper in Hostile Times"
     A hostile market evolves through six predictable phases. Most companies fail, withdraw or become acquisitions before this evolution is complete. They fail because their management policies were not effective. The few who survive and prosper do so by making decisions that follow two rules: attract customers and discourage competition. Losers lose by not following the second rule.

  • "The Choice of New Products"
    Companies add new products whether or not a market is hostile. But the choice of which products are most advantageous to add varies with the market situation. (1995)

  • "Turmoil Below: Confronting Low-End Competition"
     There are four major types of competitor who offer your customers low prices. Each of them have distinct weaknesses. Your response to them depends on your answer to several tests that you would apply to your market and your competition.