How To Efficiently Raise Your Prices
The Importance of Pricing
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.