Scenario: "Dude, Apple sells their computers for a humongous chunk of cash. Dell sells theirs for basement-bottom prices. We gotta attack the middle. We'll make billions. Yay!" Peep this: You're buying a watch. You have three options:
- Watch A: $25
- Watch B: $250
- Watch C: $2,500
What do you buy among the 3?
If you're like most of the human population, you'd either go for the cheapest watch ($25) -- or the most expensive watch ($2,500). That middle-range $250 watch? Eh. Nope. Trash it. That's human psychology for ya: When you're a cheap bastard, you squeeze as much out of a penny as possible; and, when you're feeling like MC Hammer, you spend a humongous chunk of cash like it ain't no thang but a chicken wing on a string. (That's how you explain why yacht-buyers complain about their cell phone bills.)
Study: High-end or Low-end, Only
When consultants at Boston Consulting Group researched the lower-end, the middle-end, and the higher-end of purchasing markets, they reached this conclusion:
- "Trading up and trading down were big opportunities for companies and for consumers."
- "Both ends of the market offered huge opportunities."
- "Markets were bifurcating, which meant that the top and bottom were growing and the middle was in horrible decline -- and that is creating quite a few casualties."
- "In every category we looked at -- and we studied 30 of them in detail -- there was this war."
- "The war was for this consumer to either trade up or down or to evacuate."
"Examples, please?" We're glad you asked:
- "In the car business, the middle market has shrunk by 12 market-share points."
- "In the television market, it has shrunk by 40 points."
- "In the U.S. washer market, the middle market has declined by 16 points, and on and on."
The key point: when pricing a brand name's products, choose either the cheap-@ss end -- or the highest end. Stay clear of the middle -- because it sucks more than you know who.
"But hey, I have bought $250 watches!"
You're either in one of three camps:
- You're in the shrinking minority.
- You're supporting the company because of some personal connection.
- Most likely, you were younger than 20 years old.
Regarding #3, a $250 for a watch puts your >20-year old butt head-and-shoulders above your peers -- if you're living in the average American community, of course. It's akin to buying the latest Air Jordans when you were a kid -- knowing you had the most expensive shoes at your school; then when you got a sweet position in your 30s, you "graduated" to Cole Haans. That means that Buyer Bobby has his own definitions for what's cheap and what's expensive. To attack his specific market, price your product in a way that meets either of those two ends.
If America's Most Admired Companies Does It...
It's something you might not have noticed: how six of Fortune's 2006 Most Admired Companies price their products. The quiz for your badass: For the following companies, denote each as (a) "Low-Priced", (b) "Middle-Priced", or (c) "Freakin'-Expensive."
- Southwest Airlines
The answers: 1) c; 2) a; 3) c; 4) a; 5) c; 6) a&c. If you got them all right, grab a Carne Asada burrito on us: you've noticed how thriving companies cater to consumer psychology. "But what's up with Toyota?" We'll explain below.
"Look, you sons-of-biatches: I want to sell cheap stuff to attract economic buyers. But, I also want to sell luxurious stuff to grab rich buyers. I see good opportunities in both. Can I still do it?!"
Oh, you bet your badass you can -- but not in a way you might expect. Toyota sells their trucks and cars on the lower-end under their parent brand name. For the pricier cars? You guessed it: Lexus. Now, if Toyota sells their Lexus line under the "Toyota" brand name, they'll send messed-up signals to consumers. Why? People associate symbols with certain brands using their pricing structures -- as the quiz showed you above. Blame it on the pricier buyers, who are infatuated with the status a rich brand name brings. When Buyer Bill buys a sweet lookin' $150,000 Porsche 911 Turbo, he doesn't want his car to be associated with a $12,000 automobile. If it does, he'll seek another brand name that will comfort him with the exclusivity he wants. If you're targeting two different markets, distinguish your filthy rich items from your cheap items as much as possible (i.e. with two different brand names, identities, color scheme, etc). Your bottom line will thank you. So when you're choosing a pricing structure for a brand name, use this sucka:
Under my brand name: ________________, people associate the name with:
- a) low-priced
- b) expensive
Posted on October 31
Next tip »