Abrasives SMEs Pricing Strategies

In recent years, with the continual growth of China's industrial diamond capacity, especially the rapid expanding of large enterprises, the industrial diamond price is declining gradually. Under the influence of traditional marketing concepts, many abrasives manufacturers have spared no efforts to gain limited market share by price wars. As a result, customers have become more sensitive to price. Large enterprises can lower costs and gain profits based on their advantage of scale; while abrasives SMEs have neither abundant room to cut down prices nor the ability to take advantage of the price to expand market share. Under such conditions, how to survive has become a primary problem for abrasives SMEs. This article attempts to analyze how to improve abrasives SMEs' profitability in the perspective of price setting.

Let's take a look at Starbucks first. Recently there was a hot topic concerning pricing: CCTV made Starbucks' coffee price public, thinking that its price was extremely higher than costs and accused Starbucks of deceiving consumers. Actually, Starbucks is not to blame. This point of view simply assumed that cost is the only criterion for setting a price. Starbucks does not only sell coffee, but a lifestyle as well. Nowadays, most abrasives SMEs have adopted such pricing strategy, which reflects neither market segment nor product diversity.

Next we may analyze the differences between large abrasives enterprises and SMEs. On the one hand, large abrasives enterprises can produce in bulk to lower costs; on the other hand, they can further lower costs depending on their capital productivity to optimize supply chains. For abrasives SMEs, limited company scale by market and capital shortage have made it extremely difficult to contend with large abrasives enterprises. So what should abrasives SMEs do to compete with large abrasives enterprises and improve profitability?

1. Know About Product Value to Customers

Product value can be divided into two parts: actual price value and psychological value. The latter means how much a certain product can satisfy customer needs. If we take into account how our products can create value in the practical application stage, then we can figure out a price that is both profitable for companies and competitive for customers. For instance, if a company's diamond cutting efficiency is 0.3 times higher than its best substitute, then its price can be 0.1 or 0.2 times higher than competitors's price.

2. Market Segment

When Haier purchased a Japanese washing machine and refrigerator in 2011, to remedy refrigerator market continual slump, Haier Group conducted an overall research into the Japanese market, after which it found out that singles took up a greater proportion in Japan modern society and they didn't need the big refrigerators common for larger families. Therefore, Haier launched the Mini refrigerator that was suitable for singles and gained great popularity. The same goes for the industrial diamond field, if we conduct abundant market research and try our best to meet demand for a specific market, then the abrasives industry can also set up advantages to prevent other competitors from causing damage.

3. Launch New Products According to Changeable Market

Many attribute Apple's success to its constant innovation that enables Apple to lead the market trend. On the contrary, Crocs has been devoted to the production of one single product--Dongdong shoes. In 2008, Crocs suffered from a net profit loss as high as 1.85 hundred million dollars, after which it was acquired. In short, the market is changeable all the time. To guarantee a favorable profit and maintain stable operation, abrasives companies should keep an eye on the latest market trend and bring forth the new through the old.

4. Set Up Price System

Within the abrasives industry, many abrasives SMEs are not good at negotiating price. They attach more importance to turnover rather than profits. This is the consequence of an effective management shortage.

In response to frequent price changes, abrasives SMEs can set up standards for pricing, discount and payment. At the beginning of quotation, all these standards should be made clear to customers, an advantage of which is to establish long-term mutual rapport with customers.

In conclusion, in the situation where large abrasives enterprises compete by price wars, abrasives SMEs can adopt different pricing strategies to avoid price competition and achieve stable development.