Product pricing is a major concern when it comes to dealing with competition. It is a very interdependent relationship that is governed by two main strategies. The market is divided into 2 major segments. And players are strictly classified to belong in either segment only.
Low price market segment.
The market is flooded with Fast Moving Consumer Goods (FMCG’s) that are almost indistinguishable from one another. Picture this. Drug store shampoos don’t command a huge premium. It is a bottle of shampoo. No frills. Nothing fancy on offer. It cleans your hair and promises nothing else. It does not have brand value. In such a scenario, the lowest priced product that meets the requirements stands the best chance of becoming the market champ. This is strategy one. It is simple enough- maintain a low cost manufacture process and sell it. The focus here is not on brand, marketing or product differentiation. There isn’t much focus on selling at a high profit margin when you consider each piece. Such products sell in high volumes and hence, bring in profits.
Here, the competition is between all the drug store FMCG’s that sell at similar prices. So, competition is dealt with via lowering cost of production. This leads to major price wars. Players are always looking for ways to reduce prices. Needless to say, the lowest price guarantor wins the battle; but that’s only until another competitor figures out a way to lower his costs.
Niche product market segment.
You don’t expect a movie star to use a drugstore shampoo. So, that opens an avenue for niche products in the industry. A niche product is one that is marketed as something more than its plain vanilla counterpart. It is priced higher. It caters to a very specific, miniscule audience. It demands a premium because it has certain additional properties in comparison with its non-niche counterpart. It is associated with the upper class. Price wars are not factors in dealing with competition here. In fact, a lowered price in this segment is detrimental to business as it can be construed as a low quality product. Competitors within this segment do not look to compete with pricing. They look to portray their products better than the rest. Pricing strategies in niche markets have one ideal- to build brand image and garner even higher premiums. If a premium brands lowers prices, it defiles the brand image associated with this product. It is not seen as a worthy competitor in the segment.
In consensus:
Evidently, from the cases presented above, one can see that there is no overlap between these two market segments. Within the segment, they compete only with other similar players. The other segment competition is completely eliminated.
To have visibility in both the segments, several organizations have two brands- one for the niche market and the other targeted at the masses. This makes sure that the organization does not lose out market share in either market.