Chapter 6
Analyzing Your Buyer Benefits/Drawbacks Relative to Your Competitors
In-a-Rush TipAt a minimum, you need to understand what benefits users get from each aspect of your competitors’ products or services versus what they get from you.
Benefits are not features. Features need to be translated to:
What’s in it for the customer? And it must be from the customer’s point of view, not yours!
Examples:
- Feature: “100 more MB of RAM”
- Benefit: “Cuts your wait time because it runs three times faster”
- Feature: “Waterproof” mascara
- Benefit: “Won’t run down your face”
- Feature: “Condensed”
- Benefit: “We’ve cut all the fluff, so you get all the important content in half the time.”
- Feature: “Half the calories”
- Benefit: “Eat twice as much without gaining a pound!”
- Benefit: “Eat what you normally do—and still lose weight!”
- Feature: “24/7 customer support”
- Benefit: “Your job is safe with us! If something goes wrong, we’ll fix it any time any day!”
Uncovering What Buyers Really Value/Hate about Products in Your Marketplace
To take this next critical step in setting your prices, go to the Chapter 6 Buyer Benefits Worksheet in this book’s Appendix.
List your competitors’ names across the columns. Should you take the time to fill in details for more than your closest two or three competitors? Yes, because it may uncover opportunities for you to add a lot more profits to your bottom line!
The more benefits you find that others are offering, the better you can understand what a buyer is looking for with your type of product. Some benefits offered by others may be ones you can add into your product for little or no additional costs.
The “negatives” section is also critical. Especially if you take a little extra effort and try to imagine yourself in the shoes of one or more of your buyer types. Imagine them deciding which brand to buy. Imagine them using one of the products for the first time.
- What would annoy them?
- What would confuse them?
- What kind of extra effort are they being forced to use to enjoy the product? Effort that perhaps you could remove from your offering.
Learn More about Calculating Buyer Valuation of Different Features
Calculating the value of features that differ from competitors is one of the most difficult parts of setting a new product/service price.
Consider a 5 percent increase in the effectiveness of a bar of soap. It is probably that customers will see no value in this addition, and be unwilling to pay a higher price. Consider, alternatively, a 5 percent improvement in the effectiveness of a wrinkle-removing cream. Consumer valuation of this improvement may be 100 percent or 200 percent higher than current products.
This problem also exists in pricing pharmaceuticals. Drugs that increase the therapeutic gains of existing drugs were able to command two or three times the price of existing drugs, despite their relative therapeutic advantage being nowhere near that proportion (Lu and Comanor, 1998).
An interesting research study by Udell and Potter (1989) found attributes in new technology to be licensed to others influence the royalty rate that can be charged. Given a normal royalty rate of between 0.5 and 15 percent of sales, the researchers found nine factors can help determine how high or low within that range the price should fall. Those factors included the importance of the invention, the strength of the patent/trade secret, the competitive structure of the marketplace, investment required for commercialization, stage of development for the technology (the further along it is, the less the risk), the competitive advantage of it, the profit margin available, the extent of the innovation, and the terms (which include exclusivity and any advance payments required).
Researchers Sapede and Girod (2002) developed a conjoint model that varied price, attribute levels, and duration of protection for a vaccine. They found price was by far the most important attribute tested, in each of two countries, with roughly equal utility scores. However, the countries were very different in price elasticity. In one country, small changes in price created large changes in willingness to buy, while the other country showed much less change in demand for different price levels.
Undergraduate students in Florida and Pennsylvania were offered 18 different credit card choices (each with a different array of attributes) to determine the optimal features for a card targeting this market. The researchers found that the interest rate and the type of payment (i.e., deferred payment options) were the most important. Further, they found different attributes of differing interest to the target customers based on gender. Females were more interested in the American Express brand name, whereas males were more interested in extended payment options (Kara, Kaynak and Kucukemiroglu, 1994).
One note of caution: If you have very different groups of buyers, you may not be able to find a single value for an attribute; the groups may differ widely. For example, Hogan (2005) found a medical device manufacturer that developed a new tool that could speed up certain clinical tests by tenfold. Despite rave reviews, the product sales fell substantially short of expectations. A consultant determined that the tool saved pharmaceutical companies a lot of money and could be priced much higher to this group. However, university buyers found the improvements a negative, as it reduced student learning of testing procedures.
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