Most business owners
are failures at Pricing Strategy, so much so that they don’t even recognize
that they are a failure. What is meant here as failure is; Failure to generate
the greatest possible profit. So the
business owners who failed in pricing strategy are happily surviving but not
thriving.
Arriving at a Pricing
point is relatively easy, but that’s more like calculation. But deploying the
right strategy that delivers the intended results requires altogether a next
level of thinking and a holistic approach.
In every business, one
of the objectives is to make reasonable to maximum profit, and how you price a
product (or service) plays an important role. The most commonly used methods
are Cost-Plus or Competitive Pricing methods. Squeezing the maximum margin and
thereby maximum profit is an End Objective, but usually, the above two methods
are not always effective.
The reason for NOT
BEING SO EFFECTIVE is that margin or profit are directly targeted, and hence it
doesn’t always work.
So what really works?
Two things:
- Adapt (an already existing or proven) a strategy that is not very direct yet suitable to your business, your product, and your target geography.
Some
Examples:
Penetration Pricing: Offering a price or combo deal that makes it highly attractive. Usually, this is suitable for a new product launch or new business. Mostly practiced in FMCG (Fast Moving Consumer Goods) industry. The objectives here could be quickly gain the first few customers, be visible, and announce your product's arrival. If people like your overall offer, which is a combination of products that meets their requirements, quality, direct benefits, etc., you may be able to retain a significant number of them.
Promotional Pricing: This is usually occasion-specific short-term offerings. As the name suggests, the objective is promotion. This helps a great deal to emotionally connect with customers and create a sense of belongingness. Exercising this pricing strategy at a carefully decided frequency and strict budget controls certainly yield long-term benefits. This strategy can be adopted by many industries.
- Innovate a strategy that is unique and sustainable for a reasonable time
One of the basic expectations from the business owner or decision maker is to innovate newer ways to take ahead of their business. Pricing plays a crucial role in that.
It will be difficult to produce a clear example, like the above, under this section as it is all about innovating that is not existing. However few things explained below could be useful to innovate your pricing strategy
- Make use of data and data analytics to clearly understand consumer behavior and their inclination. The use of technology can certainly help you to stay ahead of them.
- Consider Package pricing Vs. Modular pricing. Whichever you choose between them, it must be highly convincing to the buyer
- Consider combinations of upselling or options of cross-selling that give you a lift
- What parameters/factors can attract customers to return back to you, for the same product or some other product
- The stronger business sometime induces sweeping changes usually preceded by the business model, supported by pricing strategy. Pay-as-go subscription-based models are the examples
The bottom line in any of the above or both strategies remains that the pricing arrived at has taken the following things into consideration
- Salability – you should be able to sale
- Acceptability – everyone in the game, right from people in the supply chain (i.e. Distributors, Retailers) to customers, should be able to accept.
