Which Comes First, Price or Product?#
#Omnivore
Highlights#
First comes the price, and the product is the tool that makes the price seem reasonable. ⤴️ ^301155a7
The product is the tool that makes the price seem reasonable. This sentence is very insightful and worth pondering. From a market perspective, it is indeed necessary to analyze the price range with entry points first, then consider the target audience, and then design the product.
Ultimately, customers must find the value in consumption. ⤴️ ^6667275b
You will never experience the atmosphere of Starbucks, Heytea, or Naixue in a Migu Ice City, and that is the value of the latter. ⤴️ ^75d81200
Same product, different prices and values.
The role of pricing is actually to help you determine the price range and target consumer group. ⤴️ ^2cc9b891
All channel choices ultimately serve people. ⤴️ ^f760e68e
Choosing a price is actually choosing a consumer group, and then establishing channels based on the consumer group. ⤴️ ^1694b85f
Reverse the role of price and competitors, and let competitors adjust the price. ⤴️ ^0f5a0656
It is your price that chooses competitors, not competitors determining your price. Never be misled by competitors. ⤴️ ^95374b88
Different price ranges attract different customer groups for businesses.
The principle of the Amoeba management system is to "maximize sales and minimize expenses." ⤴️ ^af8ea90c
A new understanding of the Amoeba system, but I still don't quite understand why.
Your price must be determined based on the value you provide to consumers, not the cost you incur. ⤴️ ^a4e13707
The price is determined by the value you provide, not the cost you incur.
This article is from the WeChat official account: Whale Research Brand Laboratory (ID: JPPLAB), Author: Mu Jiujiu, Editor: Huang Xiaojun, Cover image from: Visual China
This article discusses the question of whether price or product comes first, and emphasizes the importance of pricing before product development. The author illustrates the impact of pricing on products through examples and emphasizes the importance of choosing prices as a strategy to target consumer groups and competitors.
• 💡 The model of pricing before product development can make the product more reasonable and increase its value.
• 💡 Pricing is a strategic decision to choose target consumer groups and competitors.
• 💡 Prices should be determined based on the value provided to consumers, not the cost incurred, in order to maximize profits.
We often talk about the 4P theory of marketing, which includes price, product, place, and promotion. After determining the price and product, we focus on channels and promotion.
But have you ever thought about a question: which comes first, price or product?
The traditional thinking is to produce the product first and then consider pricing based on costs. In other words, product comes first, then price.
But if I tell you that the better approach is to determine the price before developing the product, you might think I'm crazy.
Kotler believes that: ==First comes the price, and the product is the tool that makes the price seem reasonable.==
For example, with the Mid-Autumn Festival approaching, if you want to create a high-end mooncake gift box, would you determine the price first or produce the product first?
You would determine the price first. Ordinary mooncakes cost tens or hundreds of yuan per box, but I want to make a mooncake gift box priced at 1000 yuan per box.
How can you make 1000 yuan seem reasonable? You can use better ingredients, make the packaging more exquisite, or highlight the gift value of the product...
Some tea brands do this by giving tea a gift attribute, making it more valuable.
Similarly, if you want to open a milk tea shop, your first consideration should not be whether to sell coffee or which kind of coffee to sell, but the average per capita consumption.
10 yuan, 15 yuan, or 30 yuan?
If it's 30 yuan, what can you do to make consumers feel that it's worth 30 yuan? Is it the taste? The packaging?... These may all be reasons, but ultimately, customers must find the value in consumption.
For example, Starbucks creates a third space, and Naixue and Heytea are building new retail stores, all of which give their products higher value under the same high price. You will never experience the atmosphere of Starbucks, Heytea, or Naixue in a Migu Ice City, and that is the value of the latter.
As long as consumers feel it's worth it, your business model will work.
This model is not only applicable to high-priced products, but also to low-priced ones like IKEA and Decathlon. They determine the price first and then design the product, controlling costs through the final selling price.
2
Price is a tool for symbolizing products.
This symbol is actually to enable consumers to judge whether a product is worth buying.
For example, a specialty egg with higher nutritional value than ordinary eggs is priced at 3 yuan per egg, much higher than the 1 yuan per egg for regular eggs. If placed in an ordinary supermarket, most consumers would think it's too expensive and not worth it, resulting in low sales. But if placed in a high-end supermarket, some people would be willing to buy it.
This doesn't mean that the latter is foolish, but they value the nutritional value of the product more. For them, spending 3 yuan to buy an egg with higher nutrition is worth it! As for the price, who cares.
So you will find that ==the role of pricing is actually to help you determine the price range and target consumer group.==
Just like the high-priced eggs, if you want to create a high-end product, you shouldn't place it in places like vegetable markets that focus on low prices and cost-effectiveness, or mass-market channels. It is likely to not sell well.
The well-known low-priced Western restaurant Saizeriya encountered the same problem. In the early days of its establishment, Saizeriya positioned itself as a high-priced Western restaurant, targeting high-end consumers.
But you would never expect a high-end and luxurious Western restaurant to open in a corner of a vegetable market on the second floor.
The result is predictable. The vegetable market is mostly frequented by ordinary working-class people who are not willing to spend the money for several meals at Saizeriya. As a result, Saizeriya's business was not good, and it eventually had to compromise by reducing prices by 30% to attract a large number of consumers.
Of course, this also involves the choice of channels.
If Saizeriya had initially opened in high-end neighborhoods, shopping malls, and other high-end places, its positioning might have worked.
But ==all channel choices ultimately serve people.==
All marketing discussions about channel penetration ultimately aim to target specific groups of people and achieve user conversion. Therefore, the purpose of advertising in appropriate channels is to explore suitable target groups.
If you pay attention, you will notice that the advertisements in the elevator of your residential area and the advertisements in the office building where you work are significantly different.
So on the surface, it's about channels, but behind it is the issue of consumer groups caused by product prices.
==Choosing a price is actually choosing a consumer group, and then establishing channels based on the consumer group.==
3
As we delve into channels, the game between similar products begins.
But if we look at it earlier, starting from pricing means that you have already chosen your competitors.
To some extent, the choice of price can directly determine your competitors.
For example, if you want to open a hot pot restaurant with an average per capita spending of over 100 yuan, what would you do?
You might find a good location, create unique decorations, start recruiting employees, or distribute flyers to attract customers...
But let me tell you, after determining the price, your second task is to find competitors.
To some extent, the choice of price can directly determine your competitors.
For example, if both you and your competitors sell a product for 10 yuan, and then the market conditions change and your competitor lowers the price to 8 yuan, you might also lower the price to 7 yuan. In the end, you may win the price war, but you may also go bankrupt due to negative profits.
Therefore, in managing a company, leaders must stay clear-headed. ==It is your price that chooses competitors, not competitors determining your price. Never be misled by competitors.==
4
Pricing can determine the target consumer group and competitors, but if there is something we must do, it is because this thing has uniqueness. In other words, there is no other way to achieve the same goal.
But having a good product can also achieve the goal of selecting a target consumer group and competitors.
For example, if you want to create a functional beverage, your target consumer group would be young people who need to refresh and invigorate themselves when they are tired from exercise, and your competitor might be Red Bull.
Once the product is available, all these questions about competitors and target consumer groups can be answered.
Since the product can directly reflect the role of pricing, you might wonder if pricing is meaningless.
Not really.
The reason we are keen on pricing before product development is because we want to increase profits based on existing costs and ultimately determine a price that we consider "perfect."
But if your idea of perfection is not really perfect, or even results in losses, would you still do it?
The so-called cost calculation is simply to let you know the minimum selling price of the product and understand your pricing bottom line, but it does not mean it is the right price, nor can it maximize profits.
In the circulation of products, there are two types of costs: fixed costs and variable costs. The former is the cost incurred during production and circulation, and it can be calculated; the latter is the cost incurred based on the achievement of sales, and it is unpredictable.
Each sale of a product incurs variable costs. Generally speaking, the more sales, the lower the cost. This is the effect of economies of scale.
For example, if it costs 4 yuan to produce a porcelain bowl, and other costs are 1 yuan, the selling price is 10 yuan:
When you sell 10, the other costs are divided into 0.1 yuan each;
When you sell 100, the other costs are divided into 0.01 yuan each;
When you sell 10,000, the other costs are divided into 0.0001 yuan each.
It looks great, but the premise is that you still have to sell them, and sales are unknown, and variable costs are uncontrollable.
Especially when you really achieve a large sales volume of 1000, it is inevitable to expand production capacity, which means an increase in costs such as labor and machinery, and then there is another set of unpredictable numbers.
So if you want to determine the price based solely on known costs, you may find that you can't make any money in the end.
5
What should you do then? Price first.
But price first brings another problem: cost constraints.
For example, if you want to make a piece of clothing and you want to sell it for 50 yuan, this means that the total of all your production, distribution, and other costs must be lower than 50 yuan in order for you to make a profit, or even the lower the costs, the better.
But during the production process, you may find that the production cost of a piece of clothing is already 40 yuan, and when you add distribution and dealer costs, it may far exceed 50 yuan.
What would you do then? Raise the price?
If it's just a small startup company, raising the price is easy. The boss decides with a snap of the fingers. But if it's a large company like IKEA or Decathlon, the approval process is complex, and by the time the approval is completed, the clothes may already be outdated.
In enterprise management, Inamori Kazuo talked about the principle of the Amoeba management system, which is to "maximize sales and minimize expenses."
The same applies to ordinary enterprise management. By reducing costs, you can maximize profits, such as finding alternative raw materials at a lower price or reducing costs through bulk purchasing... Cost savings are like a sponge, there is always something to squeeze.
But this also tells us a truth, in order to avoid pushing yourself into a dead end, the price should not be set too low.
If the price is set too low, it often means that there is no room left in the value chain for financing costs, inventory, accounts receivable, channels, promotion, service, etc., and it is difficult to form a cycle.
Similarly, if the price is set too high and the value does not match the price, it is just empty.
As a symbol of product value, only when the price matches the product value can customers be retained and profits maximized.
6
Finally, I want to say that when you want to try a new product, you must determine the price first.
This pricing is not something that managers decide on a whim. On the contrary, it is the value that the company can ultimately bring to consumers after comprehensively considering factors such as inherent costs and scene premiums.
But in this process, remember one thing:
==Your price must be determined based on the value you provide to consumers, not the cost you incur.==
This article is from the WeChat official account: Whale Research Brand Laboratory (ID: JPPLAB), Author: Mu Jiujiu, Editor: Huang Xiaojun