Recently, I went to renew my subscription to Symantec’s Norton 360 antivirus product. I had been receiving pop ups that my license was ending. The offers were to renew it for $79.99 a year. I routinely look at Amazon before buying anything, so when I saw that they sold the same product for $21.95, I called Norton to find out if they could match the price. They claimed it was not the same product (it was). Then, they offered me $20 off the $79.99 price. This seemed silly. If Amazon can sell their product for $21.95, why can’t Symantec?
Before the internet, there were many distributors that could mark up prices based on geography or a specific industry channel. Now, most products start out as a commodity. If the consumer can shop for a better price for the same product, they will. So unlike the Norton 360 case described, the price of any product has to be the same throughout the distribution channel. This does create more competition and puts pressure on lowering the price.
So how do you keep prices competitive and remain profitable?
- Don't sell commodities. A commodity is an interchangeable product consumers can buy anywhere. One brand can easily be substituted for another. Think of consumer electronics. When customers shop for these types of products, they look for the best price. With big box stores and super Internet sites like Amazon, it is impossible to compete and make a profit.
- Add value. Consumers will pay more for value. For example, buying a grill or flat screen TV ? A company that delivers and sets it up for the consumer is more likely to get the sale.( If you have ever tried to assemble your own grill or hang a TV on a wall, you know this is value.)
- Sell less for more. Remember, it's the profit margin that contributes to the bottom line not the sales number. If given a choice between high sales and high profit, choose to sell less for more!
- Specialize and be known for one thing. A company may not have the widest selection, but do they offer pre-sales or post sales advice? Help the consumer make the best choice and they are more likely to buy from that company.
- A distribution channel that can be supported. Don't be like Symantec. If you are going to sell a product through a broad distribution channel, sell the same product directly for the same price. Alternatively, add something to the product or service the distributor doesn't have so it can be sold for more.
How do you manage price and profit?Tags: Finance, Marketing, Money Management