Are Your Pricing Strategies Maximizing Your Profits?

Are Your Pricing Strategies Maximizing Your Profits?

    Are your pricing strategies maximizing your profits and positioning you to gain market share or…… does your company employ an inflexible “one size fits all pricing strategy” for all your products and services?

    Have you developed a variety of price strategies tailored to meet the objectives of each of your products and services?

      The present business environment requires that you critically rethink your present pricing strategy continuously to be competitive.

However, many businesses take an educated guess to determine their prices. This guess is determined by estimating the cost of delivering the product or service and adding a targeted mark-up. The result is measured against the expected competitor’s pricing and adjustments are usually made to be competitive. Once a price is set, critical evaluations to determine appropriateness are usually few. In many cases, price variations are very large with no clear explanations given or understood.

Many of the most profitable businesses are very deliberate about developing and periodically evaluating and updating their pricing strategy. They do their homework, and make pricing changes quickly when necessary. They are continually evaluating their pricing strategies and practices.

 

Have you recently evaluated, updated and modified your pricing strategies? 

Which of the following pricing strategies is best for each of your products and services? 

1.    Be the low price leader and sell what are essentially commodities;

2.    Be the industry service leader;

3.    Establish  first-mover advantage and deliberately price low in order to penetrate the market quickly;

4.    Price high to attract the early adopters at a premium profit;

5.    Bundle several products in order to make a greater profit; or

6.    Obtain premium price for a new or exclusive product that you can market. 

As previously mentioned, a company’s pricing strategies should be developed with two key strategic goals in mind:  

1.   Maximizing profits. The most profitable companies usually follow a very simple vision in developing a good pricing strategy. The goal is to maximize as much money out of each product or service sale as possible, even though fewer customers may make a purchase. They may even end up with fewer customers. But then dealing with a lot more customers can also add to your operating problems. For example, a fair number of companies have proven that making more profit off each customer can increase profits even with fewer customers.
2. Gaining market share. Another key strategy is to price your products or services lower to gain market share. For example, a pricing strategy for an online business can be to maximize the number of subscribers, even though their margins will be lower on each customer. The objective would be to gain additional profit by offering these subscribers additional services such as web hosting and e-commerce after they are customers.

 In developing a pricing strategy or evaluating the effectiveness of your present pricing strategies, we recommend benchmarking against the “Strategic Pricing Three Cs”. They are how pricing compares to meeting the customer’s expectations related competition. This is measured by:

1.  Customer Demand: Customer demand is a crucial factor in determining appropriate price. Demand is driven by factors such as customer need, customer ability & willingness to pay the amount for such a service, and the availability of other products at a different price, etc. Are you aware of your products or value added features where customers are willing to pay a higher price.
2. .Cost of Delivery:  Cost of delivery is another critical factor in your pricing. Do you know the cost of delivery of each of your products & services? Can you be more competitive in certain product or service areas where your cost or delivery may be lower than you think?
3. Competition: Do you know enough about your competition’s pricing? Analysis has shown that many companies could do a much better job understanding the competition and especially the competitive pricing environment.

 Please let us know if you would like to discuss how to we work with our clients in evaluating the effectiveness of their strategic pricing strategies & practices. We would be happy to help in any way we can.

Joe Bonocore

jbonocore@bonocore.com