Pricing Strategy

Price to enhance profit growth with leading-edge pricing strategy consultants.

Ideally, setting your prices should be straightforward. However, prospering from strategic pricing to ensure optimal profits and sustainable competitive advantage requires a more scientific approach towards pricing policy and implementation.

Like all parts of the marketing mix, pricing is completely inefficient in a silo. It is just as important in the management of exchange between seller and buyer as product, promotion distribution, positioning, people, processes, and environment and needs to be fully integrated and coordinated within the marketing mix.

Hence, pricing MUST be a marketing-led activity that is:

  • Synchronized with positioning, product management, marketing communications, and internal marketing
  • Aligned with distribution and supply/demand chains
  • Responsive and in-tune with your processes
  • Acceptable to stakeholders
  • Always appropriate from a compliance, implementation, and management perspective

Pulling a price ‘out of the hat’, applying prices you can ‘get away with’, pricing on a cost-plus basis, or pricing reactively all undermine your business’ long-term capacity to prosper at an optimal level.

Pricing expertise comes from having in-depth understanding of the dynamics of marketing and consumer behaviour, is based upon academically proven models, and is supported by commercially sound research.

Pricing Strategy Generalisations Only Work by Fluke! Don’t Substitute Operational Experience for Strategic Knowledge!

No two organisations are alike. Different product categories mean different dynamics. Geography, culture, technology, laws and guidelines, ethical nuances, ecological factors, industry structures, power balances, seasons, climates, economic buoyancies, and competitors vary from industry to industry, market to market, and segment to segment. So, if you employ a pricing strategy that worked for someone else, it is like randomly using someone else’s blood and hoping that it matches your own.

Strategic Pricing = Easier Business and Better Profits

Understanding pricing metrics can make profits soar. Applying appropriate product analysis models, the 8 Ps, PESTLE, and 5-Forces in concert with accurate behavioural analysis of target segments means your pricing strategies will maximise profits while ensuring you consistently outperform the competition in terms of sales.

Using research, you can discover the right price to sell at, the right price to discount at, the right price to wholesale at, offer RRP for, and reposition to in order to significantly improve profits with soaring sales.

Value Based Pricing

Value-based pricing uses buyers’ perceptions of value, not the seller’s cost, as the key to pricing. The organisation uses non-price variables in the marketing mix to build up perceived value in the buyers’ minds. Price is set to match that perceived value.

However, value-based pricing can be flawed if segments are ignored or misunderstood. Generalising about price elasticity can be fatal—as can basing pricing strategy on incorrect assumptions about your industry, life cycle, competition, total product, and price perception.

Pricing and Price Management Strategy Using Proven Pricing models, Practices, and Theories.

Different objectives influence pricing strategy choices. Some of these include:

Pricing Strategy Consulting Services

The key to a winning pricing strategy is for pricing to be integrated and coordinated with ALL the other components of the marketing mix. You must incorporate customer value, competitive marketing dynamics, and your own corporate strategy.

Without in-depth strategic pricing knowledge, pricing strategies can be so complex, they take years of work to implement. Some pricing problems exist despite the business knowing they have a problem. Many persevere not knowing their pricing strategies are eroding profits, interfering with sales, hampering reputation, and undermining competitive advantage.

Pricing Strategy can Affect a Brand

Understanding buyer behaviour across all segments in a market—whether it’s B2B or B2C market—is a key factor in pricing for success.

Price and pricing strategy is interwoven tightly with all other elements of the marketing mix. Change the product and you need to review the price. Change the distribution and you’ll also need to modify the price. Change the advertising? Same thing. In fact, it also applies when you change processes, the people supporting the product, and your positioning.

Advanced pricing strategy is about advanced real-time marketing management for each individual segment. Price can be the most scientifically manageable and most potentially powerful profit-generating tool in the marketing mix.

IMPORTANT: The ‘rules’ vary according to budgets, goals, resources, specialisation (i.e., product type), product category, competitive positioning, category life-cycle, segments, target audience, and other similar factors. In other words, you really need an expert if you want to do it properly.

How You can Improve Your Price Strategy Now
  • FMCG? Use advanced data mining and analysis techniques to identify the optimal discount price point for ‘case deal’ promotion at retail.
  • Juggling multiple segments? Use scientific product classification analysis to determine the optimal pricing strategy according to buyer behavioural constants observed in specific product category types.
  • Need market share growth in a competitive industry? Use life cycle analysis to select the best pricing policy for satisfying anticipated customer trends and winning market approval and market share growth.
  • Need more profits? Use sophisticated product analysis, market analysis, competitor analysis, and product portfolio management methods to forecast future sales with accuracy, generating better production and inventory control.
Pricing Tactics

Often referred to as pricing strategies, these are some of the techniques you can use to improve your business’ performance.

Keep in mind, however, that this is just a brief overview. Using these tactics without the proper strategy might be unsuitable for your business.

Pricing Tactic

Definition

Explanation

Issues/Comments

Penetration Pricing

This is where a low price is set to attract volume sales and fast growth in terms of market share, undermining competitive products by offering significantly improved, comparative value.

Use if market segments that demand greater value from lower prices can be identified. According to how well sales objectives are met, Cascade Up tactics can follow.

This is subject to long-term strategic planning, likely to accompany lean margins. It can either be a fatally dangerous or highly beneficial manoeuvre.

Cascade Up Pricing

This is where an initial low price, delivering extraordinary value, is gently increased within the target audience’s latitude of acceptance attached to the consequent price-induced product perceptions.

An example would be a car manufacturer setting a low price to get a sustainable volume of car sales but increases the price over time as the market picks up on the superior value being delivered.

As long as the value is greater than price, this tactic will not interfere with market share growth—as proven by Toyota in the mid 70s in Australia.

Premium Pricing

This is where the price is maintained consistently high as an indicator of the quality of the product.

Examples of products and services using this strategy include Harrods, first class airline services, and Porsche.

In the early 80s, BMW increased price to move its perceptual positioning from medium to premium, successfully reestablishing itself in the premium segment.

Skimming Pricing

This uses innovative newness to temporarily attach a premium price tag on a product.

It also allows control over demand where the incapacity to produce adequate volume to satisfy potential demand allows for higher initial pricing.

This approach commands high margins with prices that appeal to price-inelastic market segments.

De Beers sets a huge premium on diamonds despite knowing they could sell more at lower prices. What they do instead is choke the supply to reinforce positioning and maximise margin.

Long-term maintenance of skimming pricing can attract new competitors into the category or industry.

Cascade Down Pricing

This is where an initial high price is set at launch followed by a consequent series of downward price changes as the product life cycle moves through its five phases. The objective is to maximise profits in each market phase.

This is where an initial high price is set at launch followed by a consequent series of downward price changes as the product life cycle moves through its five phases. The objective is to maximise profits in each market phase.

Consumer expectations are so entrenched that potential adopters of an innovation purposefully delay buying until initial price reductions are introduced.

Competition Pricing

This is where prices are set relative to that of the competition. The goal is to price lower, higher, or the same based on competitive positioning, value offering, general rivalry, and other segmentation factors.

Pepsi and Coke charge significantly more for cola than lesser known brand but avoid prisoner’s dilemma by staying non-price competitive with each other.

The greater the product meaningful differentiation is, the less important competitive pricing becomes.

Product Line Pricing

This is where you charge different prices for different products across a range of products with the same brand.

Apple laptops are offered with different processors, storage, and screen sizes to appeal to different users.

Products can cannibalise each other's sales. Too many options confuses customers and undermines their intention to buy.

Bundle Pricing

This involves offering a combination of different products as a single package.

Examples would be buy one and get one free (BOGOF) deals, accommodation and flight packages, and free add-on promotions.

While supermarkets like BOGOF tactics, customers can be annoyed or frustrated by them.

Psychological Pricing

This pricing strategy attempts to optimise price based on known/proven irrationalities of consumer behaviour.

Examples would be Charging $2.99 instead of $3.00 and writing a ticket as $3000 instead of $3,000.00.

There is debate that this technique has worn out—and that’s on top of the ethical issues surrounding it.

Cost Plus Pricing

This is where the price of the product is production costs plus a set amount (i.e., markup) based on how much profit (i.e., return) the company wants to make. Although this method ensures the price covers production costs it does not take consumer demand or competitive pricing into account, which could place the company at a competitive disadvantage.

For example, a product that costs $100 to produce may be sold at $125 by a company who wants a 25% markup.

The problem with this approach is it ignores customer needs, wants, perceptions, and willingness to marry perceived worth to the exchange.

Cost-Based Pricing

This is similar to cost plus pricing in that it takes costs into account. The difference is it will consider other factors such as market conditions when setting prices.

Cost-based pricing can be useful for firms that operate in an industry where prices change regularly but still want to base their price on their production costs.

This is traditionally used in commodity and industrial marketing where marketing expertise is absent or insignificant.

Value-Based Pricing

This is where the total product has a significant effect on the psychology of buying behaviour of the consumer as does the product type.

This pricing strategy considers the value of the product to consumers rather than how much it costs to produce. This value is based on the benefits it provides, such as convenience, wellbeing, reputation, or joy.

Behavioural and situation segmentation creates value-based pricing opportunities.

For example, umbrellas command a premium price when it starts raining. Condoms are offered by vending machines in men's rooms of night clubs. Baby formula becomes or expensive in non-traditional retail hours. BMW changed to VBP in the 80s. What have the consequences been? 

Firms that produce technology, medicines, and beauty products are likely to use this pricing strategy.

Understanding and management of segments and customer post-purchase cognitive dissonance are key issues with this strategy.

Is it fair to charge an extreme margin for a life-saving drug? Is it right to sell placebo products?

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