BM1805

PRICE POSITIONING: PREMIUM, HIGH, AND LOW

Success Factors for a Low-Price Strategy

The following are the factors that help create and sustain success for companies that employ a low-price
strategy for their products:
• They began with a strategy from day one. All successful low-price companies have been focusing
on low prices and high volumes since the beginning of their operations.
• They are extremely efficient. All successful low-price companies operate with extreme cost and
process efficiency, which enable them to enjoy good margins and profits even while charging low
prices.
• They guarantee consistent quality. All successful low-price companies ensure that quality is
injected in their products and services.
• They are procurement champions. All successful low-price companies are tough in their
purchasing to obtain only low price but high quality materials used in their production.
• They have little debt. Most of the successful low-price companies rely on self-financing or supplier
credit instead of financing from banks or debt markets.
• Their advertisements focus on price. All successful low-price companies focus almost exclusively
on price in promoting their products and services.

The following are some of the global companies that employ low-price strategy:
• IKEA. This Swedish company focuses all of its activities on achieving the maximum cost
efficiencies, which makes it one of the world’s most successful retailers. The company can offer
such low prices because of its extremely high procurement volumes, its use of lower cost
materials, and its “do-it yourself” (DIY) model under which customers pick up and assemble the
furniture themselves.
• H&M and Zara. These fashion retailers do nothing unless it is absolutely required by the
consumer. All of their activities are trimmed and slimmed to achieve the highest efficiency. This
is particularly true for their logistics processes, which ensure that the companies can strategically
produce their new product lines to reflect prevailing customer tastes, and can order the right
amount of goods to avoid unsold inventory when tastes shift again. This extreme precision, speed,
and efficiency make them very profitable despite low prices.
• Dell. The company is the world’s largest seller of personal computers. The entire Dell system is
centered on the highest cost efficiency. Dell became famous for its “configure to order” concept,
which meant it built nothing in advance to store in a warehouse. It would build a computer only
after a customer ordered it. That does not just save on warehouse costs; it also reduces the cost
of returns and increases customer satisfaction. Each customer receives exactly the configuration
he or she wants. Eliminating the retailer margin enabled Dell to offer lower prices and still make
a good profit.
Success Factors for a High-Price Strategy
The following are the factors that help create and sustain success for companies that employ high-price
strategy for their products:
• Superior value is a must. All successful high-price companies offer products or services with larger
importance to customer.

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• The price-value relationship. All successful high-price companies derive their true competitive
advantage from the high value of their products in terms of objective and absolute terms, which
is translated into an appropriate price-value relationship.
• Innovation is the foundation. All successful high-price companies have groundbreaking
inventions as well as continual improvements for their products and services that makes them
sustain a high price position in the market.
• Consistent and high quality is a must. All successful high-price companies maintain high and very
consistent quality levels. Their services also meet the same requirements.
• Communication. All successful high-price companies know that they have to make the value and
advantages of their products perceptible and understandable to consumers through heavily
investing on advertisements and promotions.
• Special offers. All successful high-price companies are hesitant to offer promotions and special
offers. If the promotions they offer are too frequent or too steep, these instruments can endanger
the premium price position of their products and services.
The following are some of the global companies that employ high-price strategy:
• Apple. The company has proven to use innovation, strong brand, attractive products, and system
integration to generate higher value to customer, achieve high prices, and earn astronomical
profits, all founded upon the customers’ higher perceived value.
• Porsche. The company injected pricing to its luxury cars by going over the traditional industry
practices or rules in the true understanding of a product’s perceived value. Porsche Cayman’s high
price as an example was driven by a mixture of factors, including the design, a stronger engine,
and the Porsche brand itself. The Cayman model became a big success, despite the higher price.
Retail prices start at about P2,500,000 up to P3,500,000 which makes it one of the least expensive
vehicles in the luxury sports car ranking and the most expensive in terms of the standard features
that it provides.
• Gillette. The global shaving and personal hygiene giant offers a classic example of high pricing.
The company uses pricing of the best kind: creating value through innovation, communicating
that value, and then extracting it with high prices. An average price of an authentic Gillette razor
ranges from P2,500 to P4,500 depending on the variant.
Success Factors for a Premium-Price Strategy
The following are the factors that help create and sustain success for companies that employ premium-
price strategy for their products:
• Highest level of performance. All successful premium-price companies deliver products and
services with superior performance across all dimensions including materials, product quality,
service, communication, and distribution.
• The prestige effect is a big driver. All successful premium-price companies deliver products and
services, which convey and confer a very high level of prestige to the consumers. In addition, the
price of the product or service serves as a quality indicator for the consumers.
• Volume and market share limits. All successful premium-price companies observe volume and
market share limits especially if limited editions of product have been promised. Companies
resists the temptation to go for a “bigger” volume or market share, no matter how attractive this
may seem in the short term.
• Strictly avoid promotional offers. All successful premium-price companies strictly avoid
discounts, special offers, and similar actions since it will tarnish a product, brand, or company’s
image and will diminish the products’ residual value.

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• Top talent is essential. All successful premium-price companies employ people who meet the
highest standards and perform on a highest level. This applies to the entire value chain, from
design and production down to the appearance of sales people.
• Having control of the value chain. All successful premium-price companies strive to control the
value chain or their operating activities, including product distribution, to the greatest degree
possible.
The following are some of the global companies that employ luxury-price strategy:
• Swiss. Watches manufactured in Switzerland represent just 2% of the world’s annual watch
production. Yet on the back of this tiny volume, the Swiss watches altogether account for an
incredible 53% of the global watch market on a value basis. The average export price of a Swiss
watch is around P120,000 and the average end-consumer price is around P300,000 (Simon, 2015,
p.72).
• Louis Vuitton. The exclusivity of their products is the main reason for the success of Louis Vuitton.
Exclusive series are released on various occasions and through various sales channels of the
company. This is the main reason why people spend top dollar on a bag that is available for sale
for a limited time only. The average price of a regular Louis Vuitton bag ranges from P72,500 to
P275,000.

References
Ivanova A. (2017). 4 reasons why Louis Vuitton is so successful. Retrieved on December 17, 2018, from
https://www.referralcandy.com/blog/louis-vuitton-marketing-strategy/
Simon, H. (2015). Confessions of the pricing man. Switzerland: Springer International Publishing

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