Customers chooses a product, or a service, primarily based on two things – price and its benefits. For pricing managers these two play a vital role in understanding their products’ competitive positioning in the market.
To properly evaluate how a product is competitively positioned in the market, a graphical mapping process can be used, which is also known as price value mapping.
The map explained
Price value mapping creates a graph where you plot the prices on y axis and benefits are plotted on the x axis.
You can see above how a conventional Price value map looks like.
At the core of price value map is the economic value to customer, a concept that was made by Nitin T Metha with John L. Forbis back in 1979.
The economic value to the customer is what price value map shows – the value of a product against price they are going to pay. Using this concept managers can come up with better pricing compared to the traditional cost plus pricing model. Companies need to focus on what benefits they are going to offer their customers and then price their products accordingly.
How to use the value map
Now with the above value map, let’s try to understand how a pricing manager, or a company, can use it.
For instance, a company manufactures a product called A. The price is average, and it offers some benefits to customers.
Understanding how it can attract more customers requires market analysis where you want to know what benefits others are offering compared to the price they are charging for the said benefits.
This is where a price value map will be drawn using competitor products like B and C.
Now B lies on top of A when it comes to price, meaning it is more expensive, yet it is also offering more benefits. One of the reasons why it is more expensive is because it can due to the many benefits it is offering to its customers.
Customers tend to want more for less. So, if they are getting more benefits from a product that is charged $10 compared to a product that is priced at $15, they will go for $10.
This is the case with B here. But the price value map is putting C ahead of both A and B, yet its price is less than both. This is an interesting situation as here you can come up with two reason why C is offering more benefits to its customers yet charging less than its competition.
Possible reasons for a leading position
One reason could be that it has found a way to reduce its operating costs so that it can offer its customers more value and less cost. Another reason could be to give competitors a tough time by reducing the costs and attracting more customers to its product.
A price value map offers considerable insight that can help companies to create better pricing strategies. For people that are making item A, a price value map offered many reasons why their competitors are charging different prices and what benefits they are offering.
Knowing this, they can tweak their prices, upgrade their product and even come up with new pricing strategies to bring in customers.
Advantages of a Price Value Map
There are number of benefits of creating a price value map. Let’s go through them one by one.
It helps you in understanding customer perception about your products
The foremost reasons why price value maps are created is, because they help companies understand how customer perceive their products with the cost that they are going to pay for it.
With price and value mapped on a graph along with your product positioned against the competition, you can easily gauge whether your customers prefer value vs cost or is it because the competitor is running an effective ad campaign.
Let’s talk about this in real life terms. If Apple and Samsung are both launching phones that are on paper exactly same, then a price value map can show whether it’s the cost or the brand that makes customers decide which product they want to buy.
Understand and forecast market share evolution
Consider the example that we talked about above. It clearly shows that C is going to become a market leader soon since it has a price advantage – offering more benefits against low cost to its customers.
A price value map can help a manager understand what they need to know about market share. Whether it’s to understand the current structure or to predict what it’s going to be in next five years.
Just like our example, A is going to lose out to B since it may be cheaper, but it is not offering many benefits like B. But B is certainly going to lose to C on price points since C is offering its products at incredibly low prices.
Instantly find out how competitive your product is
With price value map, a manager can easily understand where they stand against others. Whether customers like a competitor product because of the price or the benefits it is offering, a price value map shares it in a graphical manner that allows you easily analyze where you stand.
If customers are focusing on low prices and don’t care about the benefits, you can also dip your prices but also take away few benefits. Consider a discount iPhone XR compared to iPhone XS. The former is a lite version of the original iPhone for those looking for affordable phones with less powerful camera compared to iPhone XS.
A price value map allows you to easily come up with new pricing strategies and ideas on how to win market share and beat your competitors.
In conclusion, a price value map is an important tool to understand how customers perceive your product. When it comes to benefits, customers always want something that is affordable and won’t leave a dent on their savings. A price value map allows you to create price points where a customer is happy to spend money and get their desired benefits as well. With Sniffie you can easily find out the position, in which your products stand price-wise.