The prices you charge have a direct impact on the bottom line. Price too low and you leave money on the table, price too high and you don’t get the sale. Pricing is an important element of your business strategy. The right approach to price setting is important to achieve your business objectives.
Many companies fail to maximize profits because they don’t understand the strategic importance of setting the right prices.
Pricing should not be based on costs or on what the competition happens to be charging. To maximize profits it is critical that pricing reflects the perceived value of products and services as perceived by your customers and their willingness to pay.
More than likely your business can achieve gains in profitability by adopting a more formal, strategic approach to pricing. Developing a sound process for price setting starts by finding answers to these questions:
- How do customers value your products?
- What are customers willing to pay?
- Which pricing models are most profitable?
- How does demand change with price?
- What is the role of price in your marketing message and branding?
Pricing Strategies – Customer Segmentation and Value
The best way to align pricing is to segment your customers by how they purchase and use your products and how they value them. With that insight you can then develop an appropriate pricing model for each market segment.
Some of the issues you can consider when setting prices:
- Price sensitivity
- Pricing for profit or for market penetration
- Different prices for different segments
- Customer Life Time Value
- Bundling vs. unbundling
- Sell vs. lease
- Pricing and branding
- Dynamic pricing
- Cost of switching
- Unique product features and benefits
Don’t underestimate the importance of setting the right price. If you’re interested to learn more, please contact us to schedule a free, no-obligation consultation.