Even in a mature Industry such as the wedding one, we often launch new products and services. One of the top challenges we face is how to price them. Can your competitors replicate the product or you enjoy a sustainable competitive advantage for a few years to come?
This article aims to make setting the price for new products and services easier for all the wedding professionals ranging from wedding photographers, videographers, wedding planners, officiants, DJ and more.
A very important factor that influences prices and market acceptance. If customers see the new product as a viable or even better, a superior alternative to the existing product, the owner enjoys a period of sustainable competitive advantage and pricing power.
Let's take a look at Ryan Brenizer, a New York city wedding photographer invented a new technology named the Brenizer method. Ryan's innovation was to introduce a panorama stitching process, generally used in landscape photography in his wedding works. The result was a collection of photos with a distinct look. The Brenizer method allow he is author to create images that looked spectacular an impossible to replicate with a regular wedding photography equipment.
Because no one in New York or anywhere in the world could create such photos, the wedding photographer was able to charge a premium price and photograph almost 100 weddings a year. That leads us to another factor that influences prices of new products and services: the ease with which competitors can copy the novel product or service.
Ease of Competitive Entry
If the inventor of the new gadget owns a patent or the manufacturing process cannot be the replicated, life is good. Just imagine the baker comes up with a new recipe for an amazing wedding cake. Other competitors cannot reverse engineer the cake manufacturing process so our professional enjoys a period of pricing power. She can raise prices without worrying about a decline in demand because if the demand is strong enough, regardless of the price, or baker will be fully booked.
On the other hand, if the innovation is easily replicated, me too products will inundate the market, which will put a downward pressure on the price of the item.
Skimming Pricing Strategy
Depending on the area in which he operate, in the first phases after he product launch, the demand is most probably inelastic. In other words, higher prices will not deter couples from purchasing your exquisite and unique product.
A skimming pricing strategy aims to maximize the profits in the early stages of the product life-cycle by charting a high price. Over time, when competitors enter the market with similar products, we need to compete more on pricing then on features and attributes.
Penetration Pricing Strategy
If the innovator can drastically reduce costs through economies of scale, since different pricing strategy should be employed. A low price keeps capacitors at bay and helps us reduce our costs. Over time, we gradually increase prices to match or barely beat our competitors.
Given that the pioneer enjoy superior brand recognition, she can charge a premium price.
The following situations weren't using a penetration strategy: if the market is very price-sensitive, substantial economies of scale ( significantly lower cost per unit at higher volumes).
Maybe the most important condition conducive to a penetration strategy is the intensity of competition. A low price will constitute a serious barrier to entry to any potential competitor.
Different Pricing Strategies for the Maturity Stage
When the novel product loses its cachet, we say that it reaches the maturity stage of the life-cycle. There are a few indicators of this stage.
First, the product loses its pricing power and any price increases result in a significant decline in demand.
Second, consumers are brand agnostic. While in the first stages of the product life-cycle brand was really important and could differentiate or product from our competitors, in the maturity stage brand is irrelevant and customers migrate towards the lowest price in the marketplace.
Third, the intensity of competition increases especially from new entrants who don't have to recuperate research and development costs so they can price their products aggressively. Private label products flood the market, which starts a downward pricing spiral.
In this stage, we need to face the reality that our pricing power is over and we own a commodity. The only way to increase the volume or the number of transactions for commodities is to drop prices. However that advantage is short lived as you can be easily counteracted by our competitors. In effect, by dropping prices we started a price war in which only our clients win.
This situation was apparent with the advent of digital cameras. As a very result of proliferation of wedding photographers, the price of wedding photography packages has remained stable or in some markets even declined in the last 10 years. After all, every experienced photographer can capture a wedding day in a masterful manner. As one veteran photographer told us, it is very difficult to distinguish the images of a $4000 photographer versus a $6000 artist.
The wedding market is overcrowded and the best way to differentiate oneself is through innovative products, services and processes. If you are creative and lucky enough to come up with a novel product you should enjoy a period of pricing power. Through proper execution of your pricing strategy, you should be able to maximize your profits in the launch stage of the product until its maturity when the competition will intensify and you will need to use pricing as a compressive tool. That action will materialize in an erosion of profit margins and brand recognition.
We would like to thank Calin, a Toronto wedding photographer for his contribution to this article. To enjoy his work, please visit www.bycalin.com
The Psychology of Price: How to Use Price to Increase Demand, Profit and Customer Satisfaction, by Leigh Caldwell
Pricing: The Third Business Skill: Principles of Price Management, by Ernst-Jan Bouter
No BS Price Strategy: The Ultimate No Holds Barred, Kick Butt, Take No Prisoners Guide to Profits, Power and Prosperity, by Dan Kennedy
Pricing Policies for New Products, by Joel Dean, Harvard Business Review, November 1976