Three tests to tell if there’s a perilous price-value gap

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Three tests to tell if there’s a perilous price-value gap

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How can you tell if your product commands the value that its price implies? Here are three ways to find out – one you already know: when it’s probably too late. There are two you may not know, both of which may offer an early warning sign that something needs to be done.

The obvious one: your product loses money. While there are arguably dozens of factors why a firm could be losing money, chief among them is the simple fact that the value proposition represented by its offering is not cutting it in the market. Plain and simple. No amount of price elasticity analysis, sales and promotions, or other short term tactical methods to stem the blood loss is going to matter a hill of beans. If the number of people that is willing to buy a product i.e. see its value, is less than the number required in the business plan to break even, then the problem cannot be cured through tactical means alone. A review of strategy is in order.

Social thumbs down. Here’s a blessing courtesy of social media, and a great reason to track recommendation sites and chatter about the product. If the social conversation centers around, or is shifting towards, sentiments of “too expensive”, “better values elsewhere” and 2-star ratings then this may be a wakeup call. Value < price, and the market is letting everyone know. This is an early warning sign that the product strategy (go-to-market and all) is in need of serious and immediate review. It is little wonder that well-funded and social media conscious firms religiously track what the tom-toms are saying.

The PR department issues price justifications. In an article about controlling email inboxes, the WSJ’s Joanna Stern wrote this paragraph regarding the price of Mailstrom:

And at $5 a month (or $50 a year), it costs more than it should. I’d happily pay 10 bucks a year to do a deep clean every couple of months. Mailstrom CEO David Troy says the higher price is justified by the premium product and attests that many of its subscribers use the service daily to keep on top of large volumes of mail.

If this is the only pricing issue to have arisen in the media, then Mailstrom may not have a value/price. Yet, if CEO Tory finds that his PR department is issuing media responses like this every few weeks or more frequently, then you can be sure that social media are picking up on it and amplifying it.

The price-value equilibrium can be devilishly hard to maintain as gaps are hard to see until profits start falling through them. Fortunately, social and media chatter can be early warning signs that a gap may exist – especially when there is time to do something about it.

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Written by Michael

Michael Douglas has held senior positions in sales, marketing and general management since 1980, and spent 20 years at Sun Microsystems, most recently as VP, Global Marketing. His experience includes start-ups, mid-market and enterprises. He's currently VP Enterprise Go-to-Market for NVIDIA.

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