Developing a pricing strategy can be a complex task. You need to determine the prices that make you retain customers and attract new ones, as well as ensure your company’s profitability. How can you squeeze profits from your business?
The company needs to earn enough to cover costs. Having the pricing strategy in place makes it easier to predict performancefor the following months and to determine the company’s success. The money is on the table, you just need to optimize your pricing strategy.
In general, the pricing strategy is about how you compete in the market with your products or services. You need to know how it differs from competitors and what’s your unique selling point.
For many companies, it’s still not that clear how exactly their pricing strategy is determined. There are many situations when businesses price their products too low or too high. Overall, the final price is based on competition, brand position on the market, distribution channels, salaries, etc. So, it’s good to start preparing a list of potential areas to improve margins, as pricing models that will help differentiate you from competition require building solid foundations. Let’s dive deeper into it.
Position your offer relative to your products and services
Many retailers make the same mistake when they start. They think about how much they pay the distributor or the wholesaler and add the margin. However, there are other costs connected with running the business, so you need to understand the cost structure.
The pricing strategy should be market-oriented, based on what competition has to offer. So, the final price mostly depends on the pricing policy set by a certain company or the size of the competition.
Cutting prices is one of the most often used strategies, however, it’s not the best one. With that being said, businesses should consider combining various strategies. Here are the most popular you can choose from.
One of the most often used strategies by companies that enter the market is the low price strategy. As the name implies, it’s based on using low prices, and businesses implement it to attract new customers from the very start. However, following this strategy could be quite risky for businesses, asit can lead to a price war when the companies lower their prices without a clear economic reason. The strategy is better for large companies that can lower the price to eliminate competition, as they can earn by the scale. But, it could be tricky especially for the SME sector and the consequences could even lead to bankruptcy.
Another one is the strategy of sustainable priceswhich makes companies offer products at an average market price. The company builds its position by delivering high quality and reliability. Keep in mind that people are willing to pay more when there’s good quality for the price, so it can bring you money and loyal customers.
Moreover, there’s the strategy of high prices, also known as skimming, that positions products as luxury by offering them at high prices. It can be effective but only when a company is able to create the need for their products among the target market. Even when a competition emerges, the company can reduce the prices without affecting its profitability.
There are also several other strategies. All of them are about the choice — a retailer needs to decide whether to offer premium products for a higher price but with lower conversion or to offer lower prices and generate more sales. Every strategy has its strengths and weaknessso to make it efficient, you can combine various pricing strategies. Just look at your pricing to find out where you can make money and maximize profits.
Listen to clients needs
Pricing is one of the key aspects that should be included in the company’s strategy. It’s important not only for businesses, but also for consumers, as they check prices thoroughly when they are about buying some product or service. When you’re setting the pricing strategy, you need to have clear goals to achieve.
To choose the right pricing strategy that fits your business best, test different solutionsfirst and analyze which of them are the most effective to retain and attract customers. The pricing strategy should match customers’ expectationsand needs. When the price is too high, it keeps customers away, but when you set it too low, it can be just a short-term relationship. Perhaps you can refer to selected segments of clients or run cross-sales?
How do you find out what are your customers’ expectations? There are various ways to know their needs better. Besides doing in-depth market research, you can get feedback through social media, email or surveys.
Establish an effective pricing strategy for your company’s products
When you set up the pricing strategy, you specify how much your customers will pay you for goods. However, remember that you need to cover your costs and earn the profit, so think about it wisely. Many companies set lower prices when they enter a new market, however, it’s not that easy to offer higher prices at a later time.
There are only a few areas in the company to optimize costs and the price plays an increasingly important role. This is why it’s crucial to have a pricing strategy that will help you achieve business goals, as it comes with identifying and prioritizing the areas with the biggest potential for the company.