Business Growth Fundamentals – Setting the right market prices with Bowman’s Strategy Clock
Do you know which options you have to position yourself price-wise? In this fourth part of the Business Growth Fundamentals Series, we will take a look at Bowman’s Strategy Clock.
Bowman’s Strategy Clock is a model developed by Cliff Bowman and David Faulkner. It is an extension of Porter’s competitive strategy model which only looked at three basic strategies. Bowman’s Strategy Clock refined 8 strategies to differentiate yourself within competition.
The model is built like a clock which considers two dimensions:
- Perceived value to the customer
This clock tells you if your customers will be willing to buy your product or what you can do to be competitive again.
Let’s review the 8 strategies:
Strategy 1: Low price and low perceived value.
This is a strategy of pure price war. Customers of these products will always buy from the cheapest provider. If you are cheaper than the others, you can survive on this strategy. But you always have to expect that somebody else shows up who is cheaper than you.
Strategy 2: Low price and medium perceived value.
This is the most common strategy in the retail market. You still compete on prices, but the customer perceives the value of the good better than in strategy 1.
Strategy 3: This strategy is called Hybrid model.
This strategy is based on a high perceived value to the customer but a low price. A typical example for this strategy is IKEA.
Strategy 4: The fourth strategy is called “Differentiation”.
Customers perceive a very high value and you charge a medium price for it. An example for this strategy is Starbucks. Starbucks is differentiated, so they don’t just sell regular coffee. They created an environment around the coffee, you can sit there, you can work there. They are definitely more expensive than simply buying your coffee at a grocery store.
Strategy 5: This strategy is called “Focused Differentiation”.
Customers perceive high value from the good and the good is expensive. This is the typical luxury good area with brands like Luis Vuitton, Gucci, Ferrari, Patek Philippe just to name a few. Here, people don’t care how much it costs. They feel so much value from the product, they will pay any price they want.
The following strategies 6, 7 and 8 are risky strategies. Let’s check out why.
Strategy 6: This strategy is called “Risky High Margins”.
That means you still have a very high price, but the customer doesn’t really perceive the value anymore. That is a risky strategy, because you don’t know how long clients are still going to be willing to pay for your product at this price point. If customers don’t perceive the value, then it is just a matter of time until a competitor is going to win your clients. That is why this is risky. You can earn a lot of money if you have clients, but if you have some kind of substitute or some other competitor joining the game, you may lose your business.
Strategy 7: This strategy consists of a high price and a low value.
You can only survive here, if you are a monopoly. Having a low value for a high price may be the death of your company. Only monopolies can survive such a setting.
Strategy 8: This strategy is called “Loss in Market Share”.
Your product has a medium price but a low perceived value. In this strategy, differentiation is missing. An example for this strategy would be Tesco in the last few years. They have suffered pretty significant market share losses. Either you have to increase the perceived value to go up to Differentiation or you have to lower the price. So that are the options they have.
How to apply this model to your business?
- Identify where you are located on the clock
- If you are in the “risk zone”, you need to get out there as fast as possible. Either increase the perceived value, add more benefits for the customer, increase your quality, brand yourself or reduce your price.
- If you are in any other segment, check if you are happy with where you are located. If not, try to increase the perceived value or differentiate yourself in order to increase your prices.
Apply this to your business! Assess where you are standing. Look at what you do and what strategies you have available, especially regarding product pricing.