Page 119 - MYM 2016

between price and pro t is always the central theme, and the CEO must play the strategic, cultural, and custodial roles.
Porsche clearly has a premium price position,
if not a luxury one. An ethos of value creation and pricing emanated from the C-suite during Wie- deking’s tenure, as he ensured that the company ful lled that price position by keeping product qual- ity and costs in line.
What are the common factors behind suc- cessful premium pricing strategies? Here are some recommendations.
1. Superior value is a must: Premium pricing will work over time only if a company o ers superior value to customer.
2. The price-value relationship is the deci- sive competitive advantage. Successful premium products derive their true competitive advan-
tage from their high value (in objective, absolute terms), translated into an appropriate price-value relationship.
3. innovation is the foundation: in general, innovation provides the foundation for a successful, sustainable premium price position. is applies to groundbreaking innovations as well as continual improvements, such as Miele’s under the motto “For- ever Better”.
4. consistent, high quality is a must. is prerequisite comes up time and again: successful pre- mium suppliers maintain high and very consistent quality levels. eir service must also meet the same requirements.
5. Premium pricers have strong brands: one function of these strong brands is to transform a technological advantage – which is o en temporary – into a long-lasting image advantage.
6. Premium pricers invest heavily in com- munication: ey know that they have to make the value and advantages of their products perceptible and understandable to consumers. Remember: only perceived value counts.
7. Premium pricers shy away from special o ers: ey are hesitant to o er promotions and special o ers. If the promotions they o er are too frequent or too steep, these instruments can endan- ger the premium price position.
But what do the strategic, cultural, and custodial
roles demand of a CEO who chooses a low-price or even an ultra-low-price position – positions which are both relevant for highly developed and for emerging countries? e key virtues in those com- panies are frugality, modesty, a thorough distaste for waste and anything non-essential, and perhaps even
a certain amount of stinginess. e CEO needs to remain true to these virtues, even in years when the company earns stronger than expected pro ts. If the CEO yields to temptation and lets these virtues slide, he or she makes the company’s low-price position untenable. is helps explain why long-lived compa- nies with low-price positions are both special and rare.
aiming low: Success factors behind a pro table low-price position
Winning with low prices is not merely a game of math, where you stay one notch below the compe- tition. It is far more a game of culture and attitude.
It takes a special kind of company – from the CEO on down – to make a low-price position sustainable and pro table. e skills and traits to pull that o – such as cost-consciousness, relentless e ciency, and customer-driven design – must be anchored in the company and its culture from the very beginning.
However, we should heed two caveats. First,
we should not confuse a low-price position with
the decision to wage a price war. e latter is akin
to driving from Point A to Point B by causing hit- and-run accidents and road rage. Such drivers may eventually reach their goal, but will struggle to go further and will leave a lot of damage in their wakes.
e low-price position I refer to stands in
stark contrast to that price-war mentality. It has
a long-term orientation built on consistency and sustainability, not quick results. e early 1990s groundbreaking price war in the U.S. airline industry highlights this distinction. As American, Delta, and United changed their fare structures, then slashed prices month a er month to undercut each other, Southwest Airlines took out advertisements which said, “We’d like to match their new fares... but we would have to raise ours.” Southwest was born with
a sustainable low-price position the others could not reach, no matter how aggressive their price cuts.
e allure of discounting and the adrenaline
MarketiNg strategY
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