Factors Influencing Your Pricing Strategy

 

Chron highlight the four marketing P’s – product, price, promotion and placement in being the basic components to any marketing mix. The decisions you make with regard to all of these elements can mean the difference between success and failure. There are many factors that will have an influence on how you set the price for your product or service, with some of them internal and some external, and most of them will fluctuate over time. 
The laws of supply and demand should always come into play when setting your pricing. If a product is in high demand, particularly if demand exceeds supply, then the market can bear a higher price. Conversely, if demand dwindles, consumers will not be willing to pay higher prices. Your pricing should remain relatively stable over time, but you can put promotions in place to discount the price when needed.
Setting your prices without a thorough grasp of your brand objectives can destroy any brand-building efforts. Your price is a part of your brand image. For example think about Walmart, which has built its entire brand around low pricing, whilst Tiffany & Co. consumers expect high end-pricing. If your products’ prices are not in line with your brand image, you will confuse consumers instead of converting them. 
If you want to make a profit on the sale of your products, you must charge a higher price than what it cost you to actually produce and transport them. The cost of goods sold almost always plays an integral role in any pricing strategy. The exception to this is if you are promoting your product as a loss leader. A loss leader is a product that is sold below cost as an incentive for consumers to purchase other products at normal prices. Many mobile carriers, for example, sell cell phones at hugely discounted rates so that consumers will sign on for one of their cell phone service packages.
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How Marketing Includes Your Pricing Strategy

Overland Park Marketing state how marketing is not just advertising, it is also pricing strategy. Promoting your products may help get them in front of customers, but how you price them has an even bigger effect on a person’s decision to make a purchase. There are several things you should consider when creating a pricing strategy for your business:

1. Who is your target market?
What kind of income do they have? Do they value quality over price? Are they willing to pay top dollar just to make a statement? These are all things you should know about your target market. Answers to these questions will help you determine the type of pricing strategy you should use.
2. What are your competitors doing?
If your target market is price conscious, it’s important that you offer competitive prices. The only way to effectively determine a competitive pricing strategy is to monitor your competitors closely. Do their prices change regularly? Do they offer any discounts?

3. Should you offer any packages?
It may be beneficial for you to offer packages, or “bundles.” This is especially true for service-related businesses. By offering packages of complementary products or services, you can discount the price a little to make it a better deal for the customer, all while ensuring an increase in sales volume for your business. Just make sure you don’t discount it so much that you’re barely making any money off the deal.
4. Is your pricing consistent across the board?
Often times I’ll review a company’s pricing strategy and I can tell that they really don’t have one. They’ll simply pull a number out of thin air and assign it to a random product. It’s important that you have a pricing strategy in place and that it’s consistent across the board. Many small businesses start at the breakeven price and mark everything up a certain percentage. This is better than nothing, but it’s also important that you take note of your best sellers and find out from your customers which items are in high demand. These are the items you can mark up even higher because people are willing to pay more for them.

Read more at:
http://www.overlandparkmarketing.com/marketing-is-not-just-advertising-its-also-pricing-strategy

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Stratinis can endeavour to optimize and manage your prices through our pricing software

Tips For A Successful Pricing Strategy

Shop2Grab understand how competition in online business grows tougher and tougher each day, with more brands using smart techniques and campaigns to lure customers to their products, it can be a challenging task to sell your products without having the right strategy in place. In order to ensure the longevity of your business, it is vital to include information about your brand reputation, details of your customer’s profile and a comprehensive pricing strategy. Here’s a few tips on how to develop a successful pricing strategy for your products:

  • Know your brand reputation and USP
    Understand how your customer base perceives your brand. What would they describe you as? A little research can help you understand their perception of you, your USP and your weaknesses. Work on the grey areas from this research information and strengthen your USP. You also need to understand the kind of products you are selling and keep your strategy focussed, through keyword rich content integration and the use of other tools that help you reach out to your core customer base.
  • Offering discounts 
    Another important way to lure in your customers is by offering discounts. While designing discounts keep in mind that pricing your products too low may set unrealistic expectations from your brand and make your business highly unsustainable. So try and price your products that offer a lesser margin as compared to your competition but do not affect your profits or your business.
  • Incentivising business
    Deploy time based sales to obtain more profit. You will find a lot of competitors putting a timeline to their sales so as to create a sense of urgency in the mind of the customer. You could use ads stating “ Buy 2 and get 50 per cent off” to draw customers’ attention and make good sales during this period. What you need here is a good pricing strategy that allows you to cut down on the price of a product, strategically, without affecting the business and also keeping the customer happy.
  • Diversify
    Keep track on the current happenings in the e-commerce segment by staying alert about all trends. Follow all e-commerce news and check using the Google Analytics tool to understand how your strategies are working on your customers.

Read more at: http://shop2grab.com/blog/5-tips-successful-pricing-strategy/

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Why Price Positioning Is More Than Defining Price Distances To Your Competitors

By guest blogger: Christoph Meili at Input Consulting AG

For many years, price positioning was basically reduced to the question how effective prices of products and services should be set compared to competitors. However, during the last decade of pricing, a new and a lot more complex perspective on price positioning has gained ground: the price and value perception. This development was based on the insight that one of the most important drivers of a customer’s price satisfaction is the perceived price-value-ratio. 

A simple yet useful model that can be used to determine ones price-value ratio and though define ones price position in a certain market is called value map. The basic model of a value map is shown below:

The value map includes 3 key elements:

  1. Perceived price: Price perception is mainly driven by eight factors (price interest, price estimation, price knowledge, price image, willingness to pay, effective price, price preferences, price satisfaction).
     
  2. Perceived value: The dimensions of perceived value differ from company to company. The key question is always: which elements of the company’s value proposition are important for the customers and are therefore perceived as a benefit?
  3.  Price-value-ratio: The buying decision of your customers depends on the price-value-ratio, meaning they compare the perceived price to the perceived value. More specifically: long-term success for companies is only possible if your position is inside the price-value corridor, which indicates fairness to customers.

    Our experience shows that only very few companies have access to all that information, neither for their own company nor for their competitors. Therefore gathering the required customer and competitor insight is the first step. Based on this data the current price position in the value map can be derived. Depending on the price strategy and the position of competitors, the target position can be defined.

    Read more at: http://www.input-consulting.ch/leistungen/pricing/entwicklung-von-preisstrategien/

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    The Science of Pricing

    Are you taking advantage of the Science of Pricing when selling your products and services online This Infographic of the Week is from Mauro D’Andrea from Blog Growth and is guaranteed to have you think differently about how you price your products and services – online and off.

    How To Avoid Setting The Wrong Pricing Strategy

    Bizcrowd uncovers the right pricing strategy is crucial to a business’ success. More importantly getting your pricing strategy right, amongst anything else. Whether you’re dealing with products or services, pricing is something you can not visualise or realise in your own mind, until you are actually attempting to sell something. The following are mistakes you should NOT do:

    • Mistake 1:
      Basing your prices on your competitors

      Why?
      You don’t know how they’ve come up with that price; it might be a loss leader that they’ve already factored into their marketing budget.

    • Mistake 2:
      Lowering your prices to match competitors

      Why?
      Again, they could lower their prices for reasons that don’t necessarily align with your goals, and will have factored losses into their budgets that you hadn’t considered.

    • Mistake 3:
      Deciding prices just before you start trading 

      Why?
      It’s dangerous because you don’t have a real-time idea of the costs of acquisition and development, research, meetings, phone and computer usage, and therefore will not know if your price represents value to the customer.

    • Mistake 4:
      Using low prices as your core business model

      Why?
      There’s a place for this tactic to gain new customers; however, basing your business model on this is dangerous. You’re not necessarily building a foundation of loyal customers, rather those that are only on the lookout for bargains.

    • Mistake 5:
      Not building customer services into costs

      Why?
      Excellent customer service is an invaluable commodity in itself. Providing value for money to your customers by giving them great service is of course of paramount importance, but don’t undersell the cost of service to yourself.

    • Mistake 6:
      Underpricing a services

      Why?
      Remember that a service, unlike a product, is intangible, so people tend to judge the quality of your service on two factors – recommendations and price. If you underprice your service it can appear ‘cheap’ and inadvertently turn people off.

    • Mistake 7:
      Not asking your customers

      Why?
      If you need some gauge on your value for money offering, ask your customers, or you may find you’re losing sales because you have not adapted to their needs. Providing value for money requires constant monitoring. Offering free trials of a product or service at the start of trading is one method of testing the water from the outset, but can create a culture of ‘freebies’ that would not necessarily convert into enough paying customers. Indeed, you need to gauge both value for money and how your product or service fits with the values of your customers.

    Read more at: https://bizcrowd.com/Article/877?noticeboardId=0

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    How To Price Your Services To Increase Revenue

    Forbes answers one of the most common questions received from live audiences and emails, how to price services? The following steps can help uncover how to price your services and in turn increase revenue:

    • Price anchoring
      Price anchoring starts with a high price, and then offers the purchaser a discount; this creates the illusion of value. While this approach can be very effective in the business to consumer (B2C) environment, when selling services, the buyer might think “What’s wrong with their service if they are discounting it?” If you win on price today, you’ll probably lose it a year from now on price. If you win on value, a competitor with a lower price might not be enough to pull the client away from you.
    • Hourly or project pricing
      Recognize that when you charge by the hour, you are selling effort not results. Hourly billing is the fastest way to turn your services into a commodity. Realize that when you charge by the hour, the client pays more when you are less efficient. The faster you deliver what they need, the less they pay. That’s backward. Nobody ever sat at their desk hoping for 12 hours of your time. Clients want results. If your business allows you to focus on results with your client, then manage your interactions to focus on results instead of resources.
    • Low bidder and change orders
      If you know the client is considering alternatives, you might be tempted to propose a low, fixed cost. You’ll win as the low bidder.Then, once they need changes, you can charge a premium for the additional work. The problem with this approach is that you are consciously engaged in a bait-and-switch business model. It’s tough to build long-term customer loyalty when your client feels they always have to guard their wallet. The way to get out of this trap is to discuss (early – before the procurement comes out) the notion that their results matter. Not every client will appreciate your approach. But, the ones who do will want to figure out how to work with you.

    Read more at: http://www.forbes.com/sites/ianaltman/2014/10/14/the-right-and-wrong-ways-to-price-your-services-to-grow-revenue/

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    How To Identify the Appropriate Price Strategy

    Chron discuss how your pricing strategy affects customers and their perceptions of the value of your products. Consequently, this makes decisions about pricing crucial to reaching break-even and becoming profitable. While long-term business plans set the general direction, no single strategy works for every product or service your business offers for sale. Instead, pricing strategies tend to differ according to marketing objectives and a products place within its life cycle. The following can help in achieving a better pricing strategy:

    • Analyse the product or service
      Begin with analysing aspects and characteristics of the product or service that affect pricing decisions. Review your marketing plan and marketing mix decisions, such as how you intend to approach promotion and distribution. Include the target market, product costs, estimated or actual consumer demand and both direct and indirect competition in your analysis.
    • Set pricing goals
      Move forward in identifying an appropriate pricing strategy by setting pricing goals. In addition to linking closely to the product life cycle stage, most strategies relate in some way to market share or penetration, cost control and profitability. For example, sales revenue and distribution maximization, quality leadership and maintaining the status-quo are among the most common pricing goals.
    • Research pricing strategies
      Research and become familiar with the focus and characteristics of different pricing strategies. Examples of different strategies to research are price skimming, promotional, penetration, economy. psychological, product line and product bundling and value pricing strategies. It is important to research pricing strategies carefully.
    • Identify the appropriate strategy
      The right pricing strategy for a product or service might not be a single strategy. Instead, the most appropriate strategy might be to combine two or more strategies into one. 


    Read more at: http://smallbusiness.chron.com/identify-appropriate-price-strategy-80543.html

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    Building A Better Pricing Infrastructure

    McKinsey&Company see well-managed companies already recognize the critical role pricing plays in driving performance. A foundation that underpins excellence in pricing is the key to realizing its potential. Over the past two decades, most companies have recognized the bottom-line impact to be gained through effective pricing. Yet awareness by itself is not enough. Tapping the full promise of pricing requires an infrastructure to drive real and sustained pricing performance. With such a foundation, you have the ability to establish and strengthen pricing activities by creating deliberate decision processes, a specialized pricing organization, mechanisms that appropriately measure and reward pricing excellence, and robust support tools and systems.

    Successful companies deliberately build a strong pricing infrastructure that underpins and sustains pricing excellence. They start by focusing on the most critical pricing processes, then consider who “owns” and drives the organization’s pricing profit centre. A constant focus on performance management inspires managers to improve their pricing performance in the context of the overall business strategy, while holding them accountable to meet or exceed expectations. Finally, systems and tools facilitate pricing processes, help people in the pricing organization raise their game, and support performance management. Implementing these elements in this order—processes, organization, performance management, and systems and tools—increases the likelihood that pricing-infrastructure investments will have an enduring impact.

    The following elements are key to building a better pricing infrastructure:

    • Well-defined pricing processes 
    • High-calibre organisational elements 
    • Performance-management systems
    • Pricing systems and tools

    Read more at: http://www.mckinsey.com/insights/marketing_sales/building_a_better_pricing_infrastructure

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    The Importance of Pricing

    Changes to a pricing strategy can bring benefits with a relatively small amount of effort. On the other hand, the wrong moves in pricing can have an equally outsize effect. This is why so many companies leave pricing untouched, even when they know a new approach may be needed. For them, pricing is an unknown and as long as it’s not completely broken, they feel that they can work around any pricing inefficiencies. As a result, they are likely leaving a lot of value on the table.

    Pricing decisions can have important consequences for the marketing organization and the attention given by the marketer to pricing is just as important as the attention given to more recognizable marketing activities. KnowThis identify the steps as to why pricing is so important:

    • Most Flexible Marketing Mix Variable
      For marketers price is the most adjustable of all marketing decisions. Unlike product and distribution decisions, which can take months or years to change. The flexibility of pricing decisions is particularly important in times when the marketer seeks to quickly stimulate demand or respond to competitor price actions.
    • Setting the Right Price
      Pricing decisions made hastily without sufficient research, analysis, and strategic evaluation can lead to the marketing organization losing revenue. Prices set too low may mean the company is missing out on additional profits that could be earned if the target market is willing to spend more to acquire the product. Prices set too high can also impact revenue as it prevents interested customers from purchasing the product. Setting the right price level often takes considerable market knowledge and, especially with new products, testing of different pricing options.
    • Trigger of First Impressions
      Often times customers perception of a product is formed as soon as they learn the price, such as when a product is first seen when walking down the aisle of a store. While the final decision to make a purchase may be based on the value offered by the entire product, it is possible the customer will not evaluate a marketer’s product at all based on price alone. It is important for marketers to know if customers are more likely to dismiss a product when all they know is its price. If so, pricing may become the most important of all marketing decisions if it can be shown that customers are avoiding learning more about the product because of the price.
    • Important Part of Sales Promotion
      Many times price adjustments are part of sales promotions that lower price for a short term to stimulate interest in the product. Marketers must guard against the temptation to adjust prices too frequently, since continually increasing and decreasing price can lead customers to be conditioned to anticipate price reductions; consequently, withhold purchase until the price reduction occurs again.

    Read more at: http://www.knowthis.com/pricing-decisions/importance-of-price

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