When the value to the customer is not clear or hard to quantify it is difficult to go to market with the right price. Take the case of new market entry, while your customers in old markets may connect well with your value message it is not the case in new markets where the customers may not have heard of your brands.
The problem is complicated when the new market is made up of low value, low willingness to pay customers as in the case of Bottom of the Pyramid. Customers truly lack the resources and wherewithal to spend a whole lot on your products but do stand to get value from your products.
Introducing your product versions from your established and affluent markets into these emerging low WTP markets is fraught with perils. Wrong price will not only result in losing profits but you losing out completely to the local and regional brands.
I wrote about using relative price when the value message is not clear to your customers. The idea is to position your product and price it to capture a share of the budget spend in the particular area. A similar idea, with a variation, would work for bottom of the pyramid as well. Understand the total spend of the customer and what they spend on absolute essentials – then design and deliver a version at a price that is relative to these essentials and profitable to you.
Take the case of P&G, which is going after markets like villages in India and China. Here is what their approach is:
Products, too, have to be adjusted. Procter & Gamble has had to break down products like shampoos and soaps into smaller and less expensive sizes. In these countries, for instance, P.& G. makes sure that a small package of shampoo, enough for one or two uses, does not cost more than the price of an egg.
It is not enough that you compare your price against other direct substitutes and alternatives. You need to survey the whole range of customer spend and understand that you are competing for a share of the customer’s tiny wallet. If you did not understand your shampoo will be competing against eggs you will end up introducing a package at a price that is way beyond the reach of most customers. Note that this is not about cutting your price to meet the low WTP but versioning your product so that it is both priced attractively and can be delivered at a cost that is profitable to you.
Success at the bottom of the pyramid does not mean low prices – it is still delivering great value at the right price.