By Terry Corbell
The Biz Coach
8 Simple Strategies to Give You Pricing Power
If you’re struggling with pricing strategies, you’re not alone. Many big companies struggle, too.
By way of explanation, according to a 2011 study, almost 90 percent of executives in a global survey forecast their continued growth. However, they anticipate implementing just minimal price increases as they continue to slash costs, or at least closely monitor expenses, for positive cash flow.
A global consulting firm, Accenture, reports that’s the salient conclusion following responses from 1000 chief financial officers (CFOs) and chief marketing officers (CMOs), who were surveyed across eight industries in 12 countries.
The study’s objective: To learn how CFOs and CMOs maximize profits in controlling costs, managing money, and in pricing.
Ironically, nearly 50 percent of them expect revenue increases until about 2013. Unlike shorter downturns, the seemingly permanent volatility in this global economy continues to be a catalyst for more due diligence.
Seventy-one percent of the CMOs say pricing strategy ranks among their three most-salient objectives.
So, pricing strategies are universal dilemmas.
Often, companies mistakenly price products and services solely from their own perspectives as sellers. Businesses should focus on the perspective of the customer about value – not solely on offering the lowest price in the marketplace.
Psychology for setting prices
A minority of customers focus solely on price – people who can’t afford not to save money, and people who want to save money.
My research continues to show at least 80 percent will base a buying decision on five psychological perceptions of value. Not all buying decisions are based on what you might automatically think is logical rationale.
Therefore, in the following order, you must know the answers to these questions: What does the customer think of you and your employees, your company’s image, product or service utility, price, and the convenience of doing business with you?
For more expensive items, perceptions about price often include the cost of payments in financing. That’s especially true when the purchaser pays and uses the product on a regular basis.
Specific numbers play a psychological role. That’s why you will often correctly see value-pricing for fast food end in the number, nine, such as $3.99. For more luxury items, a psychology of quality is what counts. So quality pricing will often end in the number, zero.
My definition of marketing: The understanding of your customer for the cost-effective process of selling the right product or service at the right time and at the right price.
Therefore, it’s important to closely monitor your cost structure to generate profits, as well as your customers’ motivating perceptions and the approach of your competitors.
Eight Basic Pricing steps
- Conduct a full-scale SWOT analysis of your strengths, weaknesses, opportunities and threats.
- Analyze your marketing strategy, which includes an assessment of your marketplace, targeting and branding.
- Determine your marketing mix by defining your channels of distribution and campaign maneuvers.
- Forecast your demand curve by anticipating how your product quantity will fluctuate with the price. Not to oversimplify, consider whether an increase in price decreases your revenue or a decrease in price will increase your revenue.
- Gauge all your costs – be sure to determine both your fixed and variable costs. Fixed costs, such as office rent payments that remain at the same amount. Variable costs, such as fuel for your vehicles, can change because of gas-station prices or if your vehicle mileage go up or down.
- Anticipate your marketplace dynamics or environmental factors – whether they are competition or legal considerations, such as government regulations, or impacts from short-term or long-term strategies.
- Slate your pricing goals. That can include maximizing your profits or stabilizing your prices.
- Establish your prices, including your methods and structure. Determine the limits of what you’ll offer in discounts.
In addition to the psychology of pricing, you have other choices such as bundling to sell more products; penetration pricing, offering free or loss leaders to launch a new product; variation pricing, like the airlines that sell a flight’s first batch of tickets at the lowest fare; or geographical pricing where the location determines the price.
From the Coach’s Corner, here are related resource links:
- Daily Deal Sites and Pricing Principles – What’s Sustainable and What Isn’t
- Hottest Tactics to Beat Your Competitors
- Think 1930s for Business Success. Consumer Attitudes are Changing.
- Case Study: Mistakes Companies Make When Losing Profits
- Secrets to Success in Recessions: Expand Marketing
“Incentives are not strategy, they are tactics. Defensive measures.”
Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.