Niche Up or Volume Up
I have seen a number of articles on LinkedIn and other platforms talking about “Adding Value” to a product or service.
To be upfront, I completely agree with the concept of “adding value”. Whenever value can be added to a product or service will provide the opportunity for a higher return, differentiation in the market place, improved customer loyalty and satisfy customer need.
The issue I have and the reason for this post are that most of the examples I have seen are not exactly adding value they are about changing the product itself.
I have seen examples along the lines of
Sausage and Egg roll – $4
Handmade pure beef artisan sausage with free-range eggs on homemade roll – $8
Hand Made sausage from selected Organic Beef cuts with Handpicked Free Range Eggs on Ciabatta – $12
I could go on….
Needless to say, unless you are going to lie about what your sausage and egg roll actually is (which I strongly recommend you do NOT!). Then each of these products are completely different, the ingredients and materials used to make the product have different purchase costs and there is no guarantee that any of these additions will return I higher return than the original Sausage and Egg Roll.
In fact, they could make it harder to make and slower to produce all the time adding costs to the product.
This is not adding value; this is “Niching Up”.
Niching Up is about segmenting your market and drilling down to those parts of the market that share your beliefs and values. But this doesn’t end with the product or service it’s a whole of business approach.
When you Niche Up it is about creating a connection and building loyalty.
There is nothing wrong with selling a sausage and egg roll, it’s simple, cheap and can return a decent profit. The key is that you need to sell lots of them.
With all of the examples above even if you are only making 10% on each of them you are going to make more money per unit on the $12 item than the $4 plain sausage and egg roll.
But not everyone is into Organic, free range handmade products, there are a lot of people who don’t care they just want a sausage and egg roll because they are hungry, $4 to that market is value compared to the $12 item.
To achieve the same Gross Profit Revenue, you just need to sell 3 x $4 Sausage and Egg Rolls for every $12 Hand Made sausage from selected Organic Beef cuts with handpicked Free Range Eggs on Ciabatta.
Now if the market for hungry sausage and egg roll buyers is 10 times bigger than there is a good chance that you’re going to achieve your volume goal.
Here is the clincher….
What happens when a competitor offers a $3.50 Sausage and Egg Roll? Now you have to decide to match them or start “Niching Up”
The $12 Hand Made sausage from selected Organic Beef cuts with Handpicked Free Range Eggs on Ciabatta is not going to appeal to every potential customer, but it is also not going to appeal to every competitor. Your customer base is smaller, but your competition just got smaller as well.
The bonus is that your customer base is connected to your product. They share the values and attributes your product displays. They are willing to pay the $12 for the sausage and Egg roll because of what it stands for, and they will keep coming back time and time again. The $12 is not the issue, it is somewhat irrelevant to the purchasing decision, it is what the product stands for. An $11.50 alternative isn’t going to sway them. In fact, a product half the price would more deter them from buying as they would not believe it to be true.
So decide what market you are going to chase, both work, but both have their “cost of doing business”.
Volume Up and have a lower priced, higher volume product that is open to competition and price
Niche up and have a higher priced, lower volume product that builds from consumer loyalty
The most important aspect of either business decision is to make sure you set targets for your products and measure your product performance if you don’t then both strategies can end in tears.
If you need help in creating your product pricing strategies, then check out how we work at Business with strategy and book a call with me and let’s see how we can get your business hitting the right numbers.
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