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Berkonomics

Pick your pricing niche carefully. Defend it.

There are five major classes or niches a company should examine and make its own in calculating positioning in the marketplace.  They are:

  • Price
  • Quality
  • Service
  • Innovation
  • Elegance

Companies that compete on price rarely compete against others who emphasize service or quality.  Internet resellers have a better chance to combine price and quality than those with much more fixed overhead occupying a bricks-and-mortar physical presence in the community.  But it is important for the image of the company to be known for one of the above attributes above others. 

Some examples:  Wal-Mart is known for lowest prices, often for identical merchandise found in other stores for more.  But few go to Wal-Mart for quality brands, understanding that they accept Wal-Mart as the low-priced leader.  Nordstrom’s competes on service above all, quality second and price a distant third.  We enter a Nordstrom’s store expecting superior service and know we will pay a price for this.  Apple charges a premium for innovative products, with quality second and service third.  Mercedes offers a premium automobile with its customers expecting luxury first, quality second, service third, and price a distant fourth.  If Apple released a $229 notebook computer, it would damage the brand and reduce the value of owning an Apple computer in the minds of existing customers.

The very image of a company is influenced by this decision, as is every decision following the price positioning.  In many markets, there are poorly defended niches, even markets with dominant players.  Asus found this in the notebook and netbook market and moved in quickly to overtake all other manufacturers with low prices.  It should be noted in passing however, that competing on price alone is the most dangerous strategy of all, since other well-capitalized players can easily join the competition merely by dropping prices upon existing products, of course at the expense of its previous positioning as described above.  Asus was able to grab the mantle of price king while maintaining reasonable quality and even provide a bit of innovation in the netbook arena, worthy of applause by those of us market-watchers looking for examples of good strategic price positioning.

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