This is a reprint from Holden Advisors newsletter, this is the best advice for pricing in these economic times.
Emerging Market Innovations Protect Profits at Home
Commentary By Mark Burton
From Innovation Trickles in a New Direction, BusinessWeek.com, March 11, 2009
One the most effective ways to preserve the pricing power of high-value offerings is to have low-value flanking products within the line. These flanking products are critical, because they enable sales teams to give customers a low-priced option when they try to negotiate price on the high-value product. This turns the tables on poker playing customers who are just fishing for a discount. They now have to make a decision: go for the low-price, low-value option or admit their preference for the high-value one. Whatever decision they make puts the sales team in control as they force the customer to decide between “price” and “value.”
One problem many executives have with this concept is fear–fear of taking on additional development costs for a lower-margin offering and fear that the new offering will cannibalize sales of higher-margin offerings. Now one of the great forces of upheaval in our times, the growing power of “emerging markets” is being harnessed to make the process of introducing low-value flanking products easier.