We have found that a review of a company’s pricing methods and strategies can provide the quickest improvement to the profitability of the business. Prices can be adjusted immediately and the effect flows straight through to your bottom line.
Through our work in helping clients evaluate their pricing methodologies, we have identified four common mistakes. Do any of these ring true for your business?
Mistake #1: Your Price is Too Cost-Oriented
Companies often place all their emphasis on understanding their costs, which is then used as the basis for determining their price. Costs are important, but if you are not also focusing on value, you may be leaving money on the table.
It is essential to understand the value your product or service delivers to your customers, as well as the dynamics of your market. Customers will pay for perceived value, so there should be a strong link between that perception and your selling price. The stronger the perception of value you create in the minds of your customers, the greater the potential to increase your price.
Mistake #2: You Don’t Revise Your Price Often Enough to Reflect Market Changes
Changes in the availability or price of competitor products, the availability of substitutes, or sudden changes in demand are all good reasons to revisit your price. Many businesses are afraid to raise prices because they worry their customers will be turned off by the increase. So as a result, they absorb hidden costs to keep prices steady. But if your price is too low, you lose profit. You need to identify the key indicators that have the ability to impact your price and regularly monitor them so you can make adjustments as needed.
Mistake #3: You Fail to Take Into Account Other Marketing Mix Elements
The classic P’s of the marketing mix are product, price, promotion, and place. Don’t neglect the product, promotion, and place elements when determining your pricing – everything should work together in harmony. The product’s design, packaging, and function should all send out a strong signal that matches the price. If your image suggests high quality, customers will pay more than if your image suggests low quality. Perfume is a classic example: you can be sure that the more elaborate the packaging, the higher the price.
Mistake #4: You’re Charging the Same Price in All Market Segments
This happens when companies fail to fully understand the various market segments they serve. Some will place a much higher value on your product or service than others. Their perception of value may be determined by their need for convenience, or what problem your product or service solves for them. Understanding what is important to the customers in each of your market segments will allow you to charge higher prices in those where the perception of value for your product is higher.
Did any of these classic pricing mistakes ring true for your business?
Check out our Product Benefit Analysis Diagnostic. This useful tool can help you review and fine tune your pricing strategies.
If you feel you are too close to your business to take a truly objective view, contact me to discuss an independent review of your pricing system. We will help you examine your pricing, customer relationship management strategies, objectives, and key performance indicators to maximize your bottom line.
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