Price - Performance Analysis
Price - Performance Chart
The price – performance chart is a clear, visual way of showing the value each of your products is delivering to your customers. By finding the upper and lower limits of price in a specific market and then mapping where your products and those of your competitors sit you can learn a great deal about the market and quickly identify opportunities.
You cannot just sit down and produce this chart; first you will need to do some research.
- Identify direct competitors
- Identify the main features of your products and competitive products
- Identify competitor pricing
- Rate each feature according to customer relevance
- Set the minimum and maximum prices for the products being assessed
The chart must focus on customer needs. You may have a whole raft of cool features, but if the customer cannot see value in them, then they cannot be used to move your product higher up the performance chart. This is classic behavior in an engineering or development led organization; features get added because they can be rather than because someone unidentified a customer need that could be met.
Find the upper and lower limits by finding the most that is charged by you or a competitor for a directly competing product and the lowest price. whether you include sale or special offer pricing will depend on your market and what you are trying to achieve. If products are 'always' on sale then that is the more honest price to go with.
This is about the benefits delivered to the customer. Rate each benefit in terms of how valuable it is to the customer. Be objective when looking at competitive products. The more honesty you invest at this point the more accurate tour chart will be. If it is difficult to decide then go out and ask some customers. If you have a pool of existing customers then go and ask them which parts of the product they actually use and which ones made then decide to buy from your company.
The chart has five main areas all of which should be pretty self-explanatory but here goes anyway.
The Safe Zone
Products in this area have a good balance between price and performance. This is the right place for long term products to be.
The Good Side
From a customer perspective remember, the good side delivers more performance for the price. From the company’s perspective they could be leaving money on the table. This is a common placing when the company is following a penetration strategy to gain market share.
The Bad Side
The customer is getting less performance for the price they are paying. This placement is typical when companies are following a skimming strategy to try to recover investment cost quickly or to take as much profit as possible from a declining market.
Too Cheap and Too Expensive
Hopefully these areas don't need any explanation. Products that are too expensive rarely build a significant market share and products that are too cheap are leaving money on the table that could be going straight to your bottom line.
Price performance Chart
The Completed Price Performance Chart
When you start placing products into the chart use the size of the circle to indicate the volume of sales that product has in this market. If you don’t have that information for a competitive product, use concentric circles to show the boundaries of your best estimate.
This chart above delivers some good insights to the market we have mapped. Products two and four are underpriced and are doing well because of it. There would seem to be an opportunity in the middle of the chart for a medium price/performance product and this would be worth some investigation.
Hopefully the too cheap and too expensive areas don’t need any further explanation.
The completed chart suggests a mature market with a reasonable range of product and opportunities to investigate new product placements.
Before you draw any conclusions from your own completed chart; get a couple of colleagues to look at it and give honest opinions. If they agree with the way you have ranked the products, both yours and the competitors, then you have a good basis on which to start drawing conclusions.
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