Let’s start with a riddle: what is, in your view, easier to sell? – a one-dollar product to a million people, or a million-dollar product to one person?
As a matter of fact, every business sector offers both mass products or services (that is, available for every pocket) and premium products. Airlines offer economic and business class flights. In the food services sector, we can find both fast food locations and classy Michelin-star restaurants. The motor industry offers both expensive cars for affluent clients as well as “every pocket” ones. Even McDonalds has launched its premium brand.
However, from the business point of view, the decision whether we focus on mass products and services or sell the premium ones has its far-reaching consequences.
The first thing that comes into focus with mass products and services is that they are aimed at a wide range of consumers. Hence, their prices are calculated in such a way that many people can afford them. Such products are cheap, or relatively cheap. In order to make their sales profitable, the total amount of all costs concerning that particular product must be eventually lower than the final price.
In practice, it means that the margins of such products and services are low and generating high profits requires a large sales volume. For instance, if we earn 2$ on each item of such a product, to earn 1 mln $ we have to sell 500 thousand items or, in case of services, it makes 500 thousand clients attend.
And here we come to the core of the mass product problem. It turns out that the more you sell, the more advanced and pricey marketing you need.
How is that possible?
Let’s assume for a moment, then, that our marketing system is so efficient that it’s 10% effective, which means that every tenth person from our target group will buy the product after having been presented its offer. Thus, to sell 500 thousand items, our offer must be presented to 5 mln representatives of our target group.
Will a good marketing system targeting 5 mln consumers be cheap? Rather not. What is more, high expenses don’t end here. The production and storage of 500 thousand items or providing 500 thousand services is practically the same problem. All this requires adequately large infrastructure that will simply be expensive, especially with regard to such a scale.
In other words, the business based on mass products and services (that is, cheap, or, relatively cheap ones) has no chance for generating large profits unless supported with adequately large operational, financial and marketing infrastructure. In everyday life, the lack of adequate scale and financial support means a constant struggle for survival! And this is not what running a business should be about!
And how about starting to deal with premium products or services? What impact may it have on you and your business?
First of all, premium products and services are far more expensive than the mass ones, so not everyone can afford them. It naturally means that there will appear fewer potential clients to buy them than in the case of every pocket offer. That is why, while setting up a business based on prestige products or services, it is essential to find an answer to the following question:
Why would anyone be willing to pay more if they can buy a far cheaper mass substitute?
The answer is simple. Premium products focus on solving the clients’ problems, often a huge one, in a complex way or they entirely satisfy their needs, dreams and goals. Such a product is often ideally tailored to the client’s needs.
Hence, the premium client is more willing to pay a higher price for solving his problem at every possible level or for getting a tailor-made solution than spend money on a mass product that can’t satisfy 100% of their needs.
That is why premium products and services have a lot higher margin with lower costs. In the end, it makes generating the expected profit possible with much lower sales volume.
So, how can we use this knowledge?
Let’s come back to our example case: to generate 1 mln $ profit while selling a premium product at the price of 10 thousand $, we need to sell only 100 items. If we want to earn 1 mln $ on a single prestige product item, we need to sell it to one person only.
Naturally, selling a single premium product item is more difficult and expensive than a single item of a mass product. However, in comparison with the required scale for mass selling, prestige product marketing often turns out to be much cheaper.
It is similar in terms of product and service delivery. Attending to several premium clients is often less demanding as far as business infrastructure is concerned than providing service to several thousand mass consumers.
What are the conclusions, then?
Let’s state it clearly: it is not that premium sale is always better than a mass scale, or the other way round. There are numerous examples of businesses that have largely succeeded (and failed) both on the premium and the mass market. However, it is definitely worth checking which area is the best for your own business. If you do so, you will be able to know what is the best product to sell for your company – a one-dollar or a million-dollar one.
So, if you offer a mass product and you wish to generate a premium one but you don’t know how to calculate its price or how to gain clients and start generating high profits, I invite you to book a 60-minute strategy session with me. I will analyze your business situation and tell you what the strategy of introducing a premium product onto the market and generating high income would look like in your case.
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