3 January 2010
Pricing Series: Unique Selling Proposition
Determining the price of a product or service can be a complex endeavor for entrepreneurs and pricing managers. It often involves understanding not only cost structure, but also customer expectations. Knowing what a customer is willing to pay and ensuring that that value is above the cost to produce the good or service is a good starting point for determining price. However, competing solely on price is the fastest way to commoditize a product or service and ultimately erode company profits.
If you and your competitors offer the same product or service and the only differentiating factor is price, it is only a matter of time before competition drives prices lower and lower, essentially down to pennies above what it costs you to produce the good or service. The best way to avoid a price war such as this is to differentiate what you’re selling from what your competition is selling in a way that encourages your customers to choose your product or service over your competitors’.
One way to differentiate your product or service from that of the competition is to develop and communicate a unique selling proposition or USP. A USP is an offer or promise to the customer that cannot or will not be matched by your competitors. For example, M&M’s USP is “melts in your mouth, not in your hands.” This USP is concise and compelling and unique to M&M candies. This is a great example of an effective unique selling proposition.
In developing USPs for your products and services, get to know your customers and competitors well. Do your competitors make any promises? Do their products and services have unique benefits or glaring weaknesses? What benefits are your customers willing to pay more for? Also, be aware of benefits that your company can claim due to geographic location, customer segmentation, or attribute differentiation. Write the answers to these questions down. Use this exercise to help you focus on developing a selling proposition that attracts new customers and convinces existing customers to continue to do business with you, perhaps even at a premium price.
Use the following worksheet, presented in Andrew Gregson’s Pricing Strategies for Small Businesses (International Self-Counsel Press Ltd, 2008) to help organize your notes and lead you to the most effective USP:
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Your Company |
Your Competitor |
| Company Motto | ||
| What the company was chartered to do | ||
| How the company describes its goods and services | ||
| How goods and services benefit customers | ||
| Describe customer demographics |
Once you have created a USP for the goods and services that you offer, use it to position what you offer in a way that best promotes the attributes and benefits of your company over your competition.
Posted by: Tamboura Gaskins at 3 January 2010 8:28 am | Category: Pricing Strategy | Tags: Business Management, unique selling proposition
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Great advice– a lot of small businesses really struggle with this and end up undervaluing themselves.
USP is useful, but it has to be framed from the perspective of perceived customer value. A lot of companies get wrapped up in how wonderful their offering is, and think about features rather than benefits.