Market Price

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    Company x is a custom manufacturer of a product that is viewed by the customer as a commodity product.  The price range of this product can very from $1000s to $100,000s.  What is the best method to determine how competitive in the market place we are on price?



    Are you saying identical quantities of the identical product (form, fit, function) varies in price by orders of magnitude?
    Depending upon what?…Time of day(month, year etc)…Environment (following an earthquake perhaps)…War…



    Consider me “old-school”, but I would ask my customers. 
    Perhaps by means of a carefully constructed survey, your customers can be asked a variety of questions to which their answers (quantitative or qualitative) could be analyzed to see where you stand in their eyes with regard to price.


    Thomas Hernandez

    Know your product: Know who you are with data.  i.e. specs or the metrics of which your product represents. 
    Know the cutomer.  Survey’s, internet, bias products to potential customers.  Is your product a me-too, slight adavantage, or unique in the market to which you will be selling to? It matters.
    Know the Market.  What seperates your product from the competition.  Becnchmark the competetion.  Rate all metrics possible and rate your product in the market.  Hire a consulting firm or reseach up to 3 years of past and forecasted market finacial data in the market you are selling.  Go after data! Growth trends, what markets are inesting and how much, etc. Know who the competetion is selling to and for how much.
    Set a realistic goal of how much market your product can take (i.e. 5%-10%) and plan based on now what you know about your own product, the customer, the competetions product and the market.
    Don’t make guesses or assumptions.  You don’t know what you don’t measure.
    Just my 2 cents.  



    Just to add to some of the previous posts.
    You are in a commodity market.  What does that mean…you dont control the price of your product. 
    What do you control? 
    1) The cost of making the product
    2) The ability to generate the product and the sensitivity to how fast or slow you can get the product out the door (Control basically) 
    You can use various ways to determine your price ranking in the market as mentioned in the other posts. Or you can look at a couple other aspects to determine your competitiveness and at the same time areas to identify improvement opps that will effect your margins.  Your costs (COPQ) and your sensitivity to respond to market conditions (Process Control). 


    Paul K

    Perhaps this story is related to your question:
    Some years ago British Airways asked their Concorde passengers (generally business travellers who don’t pay for the fare) how much they thought the tickets cost. Most people thought the cost was higher than it actually was so BA increased the prices!!



    The best approach comes from Bradley Gale’s book on managing customer value.  There are tons of examples and tools to accomplish your task and the case studies are applicable to comodity products.
    He explains that a customers buying decision is a balance between perceived quality and price i.e. if the quality is percieved to be high then you can charge a premium.  There is a balance and success for you will be not only knowing where you are on this but where are all your key competitors.



    It’s conceivable for custom products to be viewed as commodities, if the customer thinks that any of a number of companies could produce the custom products meeting the same specs, with comparable service levels. In a true commodity market, basic sales process metrics should serve as a measure of price competitiveness. This could be DPM or DPMO (# of times you didn’t get the sale vs opportunities). Personally, I like a yield metric (Conversion Rate = % of opportunities converted into sales).
    However, I would be very cautious about accepting the view that the product is viewed as a commodity product. See below for more. If your perception is wrong, sales process metrics probably won’t be an adequate measure of price competitiveness.
    Is it possible that the customer seems to view the product as a commodity when they really just don’t know how to measure the value of the product and/or the cost of doing business with different suppliers? If they don’t measure the value and cost, they can’t justify paying more than the low-cost price. This is where “salesmanship” comes in – creating a perception of value, whether or not the perception is based on measureable criteria that can be applied to other suppliers’ products. One way to create the perception of value is to give the customer the tools to actually measure the value of your products/service levels with those of your competitors.
    A customer who truly views a product as a commodity buys based on cost. Hopefully, they factor in their associated transactional costs. This customer doesn’t care about custom manufactured features. Is it possible that company x really has about different customers – those who view the product as a commodity, and those who value different features and are therefore willing to pay more? If this is the case, segment the customers. For those who are willing to pay for features, focus on the value and price of the key features to the customer. For the commodity customers, just look at base price.
    If all of the customers truly view the product itself as a commodity, look beyond the product price to the customer’s transactional costs. Compare the cost of doing business with company x with the cost of doing business with other companies in the marketplace. Is company x easy to work with? Does company x understand the customer’s business and work proactively to add more value? Can company x capture custom requirements quickly and easily, turning them into finished product with a short lead time? Is billing electronic and accurate? Or, does company x create work and delays for the customer? These factors can be measured and compared in terms of bottom line $$ and/or quality of life for the customer.

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