Introduction - Striving with an unclear brand or product position August 2003 I was appointed CEO of Tele2 Norway, a telecom company renting all production capacity, with roughly 600.000 customers and at that time with around 250 Million USD in yearly turnover. We offered very homogenous telecom products, fixed/mobile minutes and ADSL that we rented from our biggest competitor. Lacking a strong, easy to understand, selling point was expensive in terms of marketing and terrible for our growth. The situation required a market position and marketing message that was easy to understand and communicate. We decided to regain the price position and make our guaranteed lowest price part of all our communication. Before decreasing your prices there is some very important work to do.
3 Vital Actions before Establishing a Price Position:
Cut your cost in all parts of the organization, do it unconditionally & do it fast. We cut staffing with close to 40% within 12 months, renegotiated all supplier contracts that had invoiced us more than 150 dollars last year, cut severely down on all company representation, moved to new premises and so on, even renegotiated the contract with the coffee supplier, a strong symbolic value! Clean up in your product portfolio. A clear price position with to many products make the administrative task and marketing message hard to support. We decided to terminate around 80% of all our products including divesting all accounts with large businesses to one of the competitors. This generated transparency and facilitated rapid and effective benchmarking of prices with competitors. Respond instantly to competitors threatening your price position. First and foremost you need to identify your top two, maximum three, competitors. We decided to respond to any price reductions from the two major competitors within 60 minutes. Doing this continually will make your competitors realize that lowering their prizes will only destroy their margins while gaining zero growth. In addition the associated press releases from your major competitors will quickly become free advertisement for your company.
Remember - Nothing is more expensive than to regain a lost price position Once a price position is established make sure you never ever loose it. There is nothing more expensive in business than loosing a price position. To regain a clear price position, not only does your company have to significantly lower the prices on your product or service, but you also need marketing to communicate it and build trust again. This dreadful combination of lowering prices while increasing marketing spending can undercut your profitability and long-term survival.
4 Advantages with a Obvious & Transparent Price Position
Significant savings in marketing. To establish your company's products or services as top of mind is easier with messages such as; most value for money, cheapest in the market, best price is guaranteed, and so on. This type of message can be highly cost efficient, short and to-the-point when creating commercials. The alternative is many times the more complicated and time consuming marketing message focusing on product differentiators such as technical aspects, design and so on. So once a price position is established and successfully defended your marketing activities can be summarized in two to three words. Substantial savings at Customer Service. A leaner product portfolio makes answers from customer service agents more correct, which in return cuts down response time while increasing accuracy. In addition, your customers that have searched for the absolute cheapest price in the market for a product or service do not expect the best customer service in the market. They have chosen you since they know you are the cheapest, leverage on that and support the customers with the very basic services only. Furthermore, customers searching for low prices are more willing to engage more actively in producing their own services, look at RyanAir and IKEA. Focus an a metric that is easy to measure and follow up on. The clear and non-disputable metric is very easy to communicate to all employees. As prices for most products or services decreases over time, independent of industry, your strong focus on defending a price position makes it is easy to explain and defend necessary cost adjustments such as layoffs and cost cutting activities.
Defending your price position is easier towards customers that focus on design, product features, technological development and so on. Meeting these competitors on their arena will cost a lot of money. A price leader's counter attack could be, let's not complicate things, You know we are the cheapest. Call us now.
5 Big Risks of Offering the Markets Lowest Prices
The Grasshopper-effect. You risk attracting customers that will switch to competitors as soon as they undercut your prices. Overall lowest cost. Successfully supporting a price leadership requires that your organization always win the low cost competition. Your organization needs to be more lean and mean or effective than all of your competitors. Economies of Scale can kill your price position instantly. Multinational corporations can by the power of size and economies of scale support your market with products at a price that mean negative margins for you and they might enter your market in no time. Keeping a close eye on the industry leaders and how they expand geographical is strongly recommended and often a very wise investment in terms of time and resources. Obsolete infrastructure, which significantly weakens the advantages with a price position on products with declining popularity. Lowering your price for existing customers. Defending a price position often means radical and fast price cuts as soon as any competitor tries to enter the price leadership throne. The question then comes on how to deal with existing customers. Being perceived as a price leader requires according to me that you include existing customers in the new price plans, i.e. accepting short-term decrease in profitability.
How did it go at Tele2 in Norway?
Tele2 Norway AS 2003 2004 2005 Revenue 1.481 MNOK (250 MUSD) 2.080 MNOK (350 MUSD) 2.455 MNOK (410 MUSD)
EBITDA 132 MNOK 213 MNOK 240 MNOK
Employees 90 people 65 people 55 people
Revenue/E 16,4 MNOK 32 MNOK 44,6 MNOK
Regaining a clear price position combined with significant cost savings lead and tremendously good personnel were the main reasons behind a growth that was significantly stronger than the overall market.
