A recent Forbes article highlighted why some small product entrepreneurs are eschewing big box retail channels and tied in well with my previous post on differentiation. The article outlines how there is room for smaller hardware retailers, primarily pure-plays, to gain online market share by competing on strong assortments and differentiated business models/go-to-market strategies. It demonstrates how hardware retailers do not have to rely on traditional big box retail methods in order to compete against traditional retail outlets and channels. It’s not about a race to the bottom; it’s about carving out your niche and exposing your strengths.
I agree wholeheartedly with the premise of the article; however, although I believe you can compete on factors unrelated to price, pricing is still the most important factor when establishing your company’s market strategy.
1. Brand Perception: A common question, but one that is extremely difficult to answer, especially for a startup is, “What is your brand really worth?” This can be hard to benchmark, especially if the product does not have market penetration or brand recognition. Being priced too high (or too low for that matter) can be detrimental to your brand, especially if pricing was established without founded research on current market pricing for similar or exact products. Even if pricing is not core to your competitive differentiation or advantage, you still need to have a pricing strategy and a thorough understanding of the competitive landscape to be successful beyond lucky.
2. Differentiation through Bundling: OK, I get it…I’ve talked about differentiation too many times, and it’s beginning to sound like I am running out of things to write about. However, I can’t stress this point enough. A business that is set on competing among all the noise of the online world can, in my opinion, still carry similar products to the masses. It just needs to get creative. Bundling additional products and services with the core product can allow smaller businesses to compete harmoniously with larger players. It also allows manufacturers to channel manage and ensure that they are not sacrificing strong relationships with long-standing retail partners. Bundling additional products and services without proper pricing information, however, can cause sales to suffer immensely if an organization is overpriced versus the market core model. Conversely, margin dollars are jeopardized if a company is not tracking pricing of similar items in the marketplace. Pricing too low can devalue these bundled products and ultimately erode profits.
3. Promotion and Markdown Strategies: Although they may think they can almost indefinitely channel manage and compete on other factors besides price, pricing becomes even more critical when mass merchants or close competition heavily promotes or marks down similar products. If pricing on these products is not closely tracked and monitored, even more niche items can be susceptible to competition. The fact that consumers are researching products and prices more than they ever have can hurt smaller businesses, especially if their products are not THAT different from other major market players. If there is aggressive market promotional or markdown activity, the smaller players must analyze competitive prices in order to avoid losing sales. In addition, they must monitor the product and price life cycle of similar products in order to ensure they are not carrying inventory for too long or losing sales due to heavy promotional activity.
The truth is that there are many other ways a brand or retailer can compete in today’s marketplace. Pricing must be integral to every process no matter how differentiated your market strategy might be. In Pricing We Trust.