The price of a product and its perceived value are two critical components that influence its position in the market. Most people only buy a product when they are convinced that the value it offers matches the price it is offered at. So the question is, what price-value combination will be best for all the parties involved?
The Bowman strategy clock model seeks to provide an answer to this question. It provides us with eight strategy options revolving around eight different price-value combinations.
What is it?
Bowman's strategy clock explores eight strategic positioning options based on two components: perceived value and price. These two components are combined in several ways for a product to arrive at its most competitive position in the market. Of course, the most competitive position will depend on the product that offers the right perceived value for the price demanded.
The price-value combinations are fixed in eight different ways relating to eight different positions in a clock. According to Cliff Bowman and David Faulkner (the model's creators), these positions determine a company's market strategy.
Bowman's Strategic Clock Positions:
Position 1: Low Price & Low-Value Added
This is the second most undesirable position to be in and the second least competitive state on the strategy clock. It is marked by low differentiated value and can only be profitable with high-volume products.
Position 2: Low Price
This strategy favors very low prices and high volumes to encourage sales. This is so that unit costs are kept low while process efficiency is gained. As a result, customers stand to benefit more from this strategy.
Position 3: Hybrid
The Hybrid position finds the sweet spot between differentiation and low cost. The products have good quality at reasonable prices.
Position 4: Differentiation
The Differentiation strategy opts for higher perceived value at increased prices. The compensation for this increased value is to raise prices or seek increased market share at moderate prices.
Position 5: Focused Differentiation
Focused differentiation is marked by high perceived value in exchange for high prices. Customers are charged a premium for the perceived value offered by big brands, as with designer labels.
Position 6: Risky High Margins
This strategy involves very high prices for standardized products. It is risky because it may backfire if the price increase is not accepted.
Position 7: Monopoly Pricing
Here, the business is the sole provider of sought-after goods/services until it is not. You can always raise the prices of low-value products knowing that the customers have no other option but to patronize you.
Position 8: Loss of Market Share
This is the most unfavorable position to be in. Imagine selling day-old food at fresh prices. The result—customers will stay away until you're forced to lower prices.
When do we use it?
Certain conditions, such as those outlined below, call for adopting Bowman's strategy clock framework.
To develop our business strategy
The two factors—"price" and "perceived value" are crucial influencers of strategic direction for most businesses. The framework allows you to tinker with them to produce the combination that best suits your business.
To create competitive advantages
Bowman's model is structured to help you settle for the strategy that can give you a competitive advantage.
To find your price—value balance
The strategy you choose will provoke certain market reactions based on what side of the price-value divide it falls into.
What business questions is it helping us to answer?
Bowman's strategy clock provides a framework for answering the following questions.
What is your market position?
The strength of your brand name will affect the strategy you adopt. For example, you don't want to raise your prices when you're just getting people to know about you.
What price is right?
Money is at the heart of every market move. And if you fix the wrong prices, it'll rub off on your balance sheet and affect your business.
How can you exploit your advantages?
Have you found a price that perfectly matches the value you offer to the benefit of your customers? Because if you do, you'd have found the right formula to improve your prospects.
Is your target market well-defined?
Your target market plays a huge role in determining what strategy you settle for. This is because they'll be the most affected by the price ceiling you set.
What areas of differentiation can you leverage?
Your answer to this question can give you a competitive edge and set you on a strong foot.
How do we use it?
Before choosing a strategy, you'll need to consider the following factors.
The Competition: The size and quality of the competition.
The Market/Customers: Consumer behavior, taste, and purchasing power.
The Value-creating Forces: The cost and quality/utility of the value.
Before you fix a price for your product or service, ask yourself the following questions.
Does the price match the value provided? Is it sustainable?
Is the product affordable for the customers and profitable for your internal shareholders?
How does this price compare to what is offered by your competitors?
Will this product remain relevant long-term? Does it provide relevant value?
How does your product rate its functional design and value-added features? Does it have the quality of convenience, ease of use, effectiveness, etc.?
The answers to these questions will give you an idea of the performance your offering will have in the market. This will then guide you to choose the strategy that best suits the prevailing conditions.
Practical Example
A manufacturer enters a new market with high prices for their products. And because there's no competition to face them, they maintain these prices until a few competitors appear. Then, they are forced to lower prices as customers start to consider other options. Soon, more rival brands flock into the market, and the company ramps up production in response.
The prices start to stabilize as they increase their production volume. But because of the growing competition, the company resolves to differentiate its product from the others. It offers to create custom-built varieties of these products for a premium price and sells them to a high-end clientele. Thus, it settles for this differentiation strategy.
Advantages
It is easy to understand and use. Moreover, it offers the use of well-relatable parameters—price and perceived value, to develop the strategy of your choice.
It offers a range of options. For example, you can choose from different strategies to create a competitive advantage for your business.
It is flexible. It allows you to adopt different strategies in response to changes in your market position. So you can switch across separate strategies whenever your local conditions change.
Disadvantages
There is no clear delineation between the clock lines—or strategy choices. As a result, it is often less straightforward to side with one strategy without borrowing from another. For example, you may intend to lower the price and value before raising the latter as a reaction to a dynamic market condition.
It seems to be targeted at competitive market spaces. Bowman's strategy clock tends to consider the prospects in competitive markets more.
There's the danger of choosing the wrong strategy. The dynamic nature of competitive markets can render a once-viable strategy ineffective.
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