Everything has a price at which the greatest volume is sold. Whether it’s a crib or a car, a book or a bike, a refrigerator or a television, each has a popular price point. If we say camera, you think $200. If we say computer, you think $1,200. And if we say car, you think $30,000. In fact, you rate items in every category by how much over or under they are from what you expect to pay.
Every product you buy has demonstrated a price point where most of that category sells, and sells the fastest. We call it the velocity price point. It’s not the average. It’s the price where the action is.
When products are priced above the velocity price point, you naturally subject them to a higher standard for quality. When products are below the velocity price point, you expect less quality. When products exhibit high quality but are at or below the velocity price point, you say they have “value.”
Just gaining access to market pretty much demands a velocity price point, but loading that product up with value can build your brand faster than any form of advertising. Why? Customer discovery, loyalty, and advocacy.
Customers will be more likely to take the chance of discovering a new brand if it is at the price they expect to pay for like products. When people discover brands whose products over deliver they like to share with their friends, colleagues, and family. They know they’ll be appreciated for the great tip. Sharing is part of the discovery process.
Once your new customer discovers that your brand has superior value, it becomes their brand, the brand they depend on, the brand they buy over and over. And they will remain loyal to their brand until the price goes up or the quality goes down.
From loyalty springs advocacy. Your loyal customers now want to convince everyone that they made the right decision when they chose your brand. They will argue the merits of your brand’s value for the price. They know that everyone else knows the velocity price point for that category of product, and basically what you can expect for your money. But because your brand delivered superior quality at the velocity price point they are going to bat convincing others to buy it. What is that worth?
When looking at the value of loyal customers, consider that they probably wouldn’t have discovered your brand if it wasn’t a value at the velocity price point. Brand builders need to measure the cost of quality against the value of loyalty.
We have met many commercial product brand builders who set their prices by what they have into it. They start with the production costs and then figure in the taxes and shipping, and the brokers’, distributors’ and retailers’ shares to arrive at a price that they say they must sell at. But we advise commercial product brand builders to consider doing just the opposite. Start with the velocity price point and work backward to discover what your cost of goods must be to achieve this sweet spot in the market, the velocity price point.
We believe that many great new products fail simply because they are priced too high for first time buyers to take a chance on discovering their superior value. A better approach might be to offer a temporary price reduction to introduce your product at the velocity price point long enough to gain traction and ultimately earn a higher price point.
Whatever you do, your brand will grow faster if you hit the velocity price point. You’ll sell more – and you’ll sell faster!