For Stronger Profits, Avoid 11 Typical Pricing Mistakes

In general, how can you manage the sweet spot – between your price-optimization and costs?

Dennis Brown of the consulting firm, Atenga (, says many companies make 11 pricing mistakes:

1. Companies base their prices on their costs, not their customers’ perceptions of value. “In certain circumstances, there are strategic reasons a company may decide to sell a product below its cost for a period of time, or to a certain market segment as a ‘loss leader,’ Brown writes. “However, when a price is set according to the perceived value of the product or service, sales are brisk, and profits are maximized.”

profits-618373_12802. Companies base their prices on the marketplace. Marketplace pricing is a resting place for companies that have given up, and where profits end up being razor thin,” he says. “Instead of giving up, these management teams must find ways to differentiate their products or services so as to create additional value for specific market segments.”

3. Companies attempt to achieve the same profit margin across different product lines. “Some financial strategies support a drive for uniformity, and companies try to achieve identical profit margins for disparate product lines,” he believes. “The iron law of pricing is that different customers will assign different values to identical products.”

4. Companies fail to segment their customers. “The value proposition for any product or service is different in different market segments, and the price strategy must reflect that difference,” he asserts. “Your price realization strategy should include options that tailor your product, packaging, delivery options, marketing message and your pricing structure to particular customer segments, in order to capture the additional value created for these segments.”

5. Companies hold prices at the same level for too long, ignoring changes in costs, competitive environment and in customers’ preferences. “It is important to recognize that the value proposition of your products changes along with changes in the marketplace, and you must adjust your pricing to reflect these changes,” Brown explains.

“The value proposition for any product or service is different in different market segments, and the price strategy must reflect that difference.”

6. Companies often incentivize their salespeople on revenue generated, rather than on profits. “Volume-based sales incentives create a drain on profits when salespeople are compensated to push volume at the lowest possible price,” he writes.

7. Companies change prices without forecasting competitors’ reactions. “Smart companies know enough about their competitors to forecast their reactions, and prepare for them,” he adds.

8. Companies spend insufficient resources managing their pricing practices. “In fact pricing is of outmost importance, and a key element of the marketing mix,” he says. “Good pricing strategies use hard data generated by modern methods such as Value Attribute Positioning, Conjoint Analysis or Van Westendorp’s Price Sensitivity Meter, to generate accurate hard data on the perceived value of a product or service, thereby enabling mangers to maximize their profits by optimizing their prices.”

9. Companies fail to establish internal procedures to optimize prices. “Price optimization data comes from focused research,” he points out.

10. Companies spend most of their time serving their least profitable customers. “While 80 percent of a company’s profits generally come from 20 percent of its customers, a careful review of the data often will show surprises, since a company’s largest customers are often only marginally profitable,” he says.

11. Companies rely on salespeople and other customer-facing staff for intelligence about the value perceptions of their customers. “Such people are an uncertain source, because their information gathering methodology is often haphazard, and the information obtained thereby can be purely anecdotal,” he explains.

Here’s a tip of the Biz Coach cap to the consultant’s philosophies. Mr. Brown’s points are valid.

You might also consider that many value-conscious customers would appreciate a cash discount in lieu of paying by credit card, which would also save you a credit-card processing fee.

From the Coach’s Corner, here are more profit-making tips:

Why Companies Are High Maintenance to Customers (but Don’t Know It) – Businesses are losing more than they know because they inconvenience customers. Such negative customer perceptions result in lost opportunities in revenue growth, tarnished branding and smaller profit margins, according to a study.

Classic Red Flags You’re about to Lose a Sale – How to Save It – You’re in the hunt for new business. You’ve done your research about a prospective anchor client. You’ve had some preliminary discussions. Now, you’re seated with the person and making your case. But will you seal the deal? Here are the red flags you’re about to lose the sale, and what to do about it.

To Cope with Rising Costs, Review your Pricing Strategy – Increased costs weigh heavily on the bottom line. If you’re being pressured by costs, it’s probably time to review your pricing strategy.  You’re not alone. No business is immune from rising costs in fuel; rent or real estate; labor; health insurance and ObamaCare; marketing; and equipment.

“How I Love Lucy was born? We decided that instead of divorce lawyers profiting from our mistakes, we’d profit from them.”

-Lucille Ball


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.

8 Simple Strategies to Give You Pricing Power

If you’re struggling with pricing strategies, you’re not alone. Many big companies have struggled, too.

By way of explanation, according to a study, almost 90 percent of executives in a global 2011 survey forecast their continued growth. However, they anticipated 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 was 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.

bookkeeping-615384_1280The study’s objective: To learn how CFOs and CMOs maximize profits in controlling costs, managing money, and in pricing.

Unlike shorter downturns before the Great Recession, 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.

There are 11 typical pricing mistakes.

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.

Businesses should focus on the perspective of the customer about value – not solely on offering the lowest price in the marketplace.

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

1. Conduct a full-scale SWOT analysis of your strengths, weaknesses, opportunities and threats.

2. Analyze your marketing strategy, which includes an assessment of your marketplace, targeting and branding.

3. Determine your marketing mix by defining your channels of distribution and campaign maneuvers.

4. 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.

5. 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.

6. 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.

7. Slate your pricing goals. That can include maximizing your profits or stabilizing your prices.

8. 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: 

Groupon Will Give You a Migraine for Ignoring Pricing Principles — Whether you’re an investor, small-business advertiser or even a customer, daily deal sites can give you a major headache. Continually, there are red flags about Groupon.

Hottest Tactics to Beat Your Competitors — Effective uses of competitive intelligence are the hottest tactics to beat your competitors. A leading consultant and author, Seena Sharp, explains how.

Think 1930s for Business Success…Consumer Attitudes are Changing — Hyper-consumerism is history. Traditional values with a purpose are in vogue. Traditional values – old-fashioned, if you prefer – describe the new mindset of consumers and what they expect from business.

Case Study: Mistakes Companies Make When Losing Profits — In order to maximize profits, there are several precautions you must take, not just mistake-free pricing.

Secrets to Success in Recessions: Expand Marketing — Businesses are self-destructing when they cut back on marketing in downturns. If evaluated and implemented properly, marketing creates a return on investment in multiple ways. More on that later. Meantime, suffice to say downturns or not, a good marketing approach requires intensity and is based on thought leadership about every facet from social media to internal company communications. And marketing, of course, includes strong public relations.

“Incentives are not strategy, they are tactics. Defensive measures.”
-Carlos Ghosn


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. 

Seattle business consultant Terry Corbell provides high-performance management services and strategies.