Consider Nike. Back in the Sixties, when Phil Knight founded it, Nike was a small importer of running shoes from Japan. When Nike began making its own shoes the key was the development of a waffle sole, which enabled the shoes to be lighter and give the athlete a tiny edge. From early on, Nike created "value for the runner". When it moved into other sports, the same thinking applied, so that athletes were effectively paying more for performance (the paying more for fashion came later).
This is just one illustration used by Tony Cram, Ashridge Business School researcher, to demonstrate how cheapest is not always best for business. "Customers talk about low prices, but truly they seek value," he says. "A higher price is acceptable when higher benefits are received. A lower price is expected when lower benefits are received."
Of course, these days much of Nike's ability to charge a premium is down to brand, or what Cram refers to as "intangible emotional connotations". A new company obviously has difficulty in acquiring such connotations early on. But that does not mean that it cannot charge higher prices than its rivals.
The keys are understanding the components of price and how customers can be convinced they are getting good value - even if they are paying more. If a company just got to grips with understanding the components of price it would doing better than most.
But the real power is in getting customers to pay more. As Cram tells it, this is about providing extra value. This can be done by improving the product or service; by raising customer expectations through, for example, getting the details right so that the customer feels that it is of superior quality; building emotional associations by linking the product with celebrations in the case of Champagne or a break from work with Kit-Kat; making sure that customers are aware of the positive benefits of the product or service, as, for example, train companies do when they arrive on time; lowering the perceived price by comparing the price of a product or service to something else or by referring to a golf club membership, say, in terms of the weekly cost rather than the rather large annual fee. It is even acceptable to actually lower the price - provided the business gains something in return, such as greater volume, better security or a longer contract.
As Cram freely acknowledges such thoughts are not his alone. The book is peppered with references to other works giving greater detail on the theories that he describes. But what he has done is bring all this material together in an accessible style.Reuse content