Pricing strategies help businesses find prices that maximize profit and shareholder value, while at the same time keeping consumer and market demand in mind. Understanding what goes into creating a successful pricing strategy helps drive business success.
What Is a Pricing Strategy?
Before developing a pricing strategy, you must understand what a pricing strategy is and the components needed to create one. A pricing strategy is a method or model that you will use to determine the best price for a service or product.
So much goes into the process of creating a pricing strategy. After all, pricing strategies must account for a variety of business factors, including:
- Brand positioning,
- Marketing objectives.
- Product attributes.
- Revenue goals.
- Target audience.
In addition to internal business factors, pricing strategies are influenced by external factors. External factors that play into pricing strategies include:
- Competitor pricing.
- Consumer demand.
- Overall trends in the market and economy.
All too often, business owners and entrepreneurs skim overpricing, looking only at the cost of products and competitor rates before changing their selling price slightly. These two factors are important, but they are not the central focus of an effective pricing strategy. The best pricing strategies maximize both profit and revenue. Learning how to use data to execute a successful pricing strategy is key.
Figuring Out Your Goals For Your Business
As you determine the basis of pricing for your business, you will want to keep your goals at the forefront of your mind. How your business makes money drives your sales and marketing strategies, so it is important to identify your goals as you start to delve into pricing. Possible goals you may have include:
- Filling capacity.
- Finding market penetration.
- Getting a larger market share.
- Getting ahead of the competition.
- Improving cash flow.
- Increasing profitability.
- Increasing prospect conversion and/or presence.
- Increasing revenue per customer.
- Introducing new products.
- Reaching new segments.
- Using resources.
Conducting Market Pricing Analysis
The first step, determining the goals of your business, leads to the next step of a thorough market analysis. A thorough analysis makes sure your pricing strategy integrates the market context where your service or product needs to compete.
If your product and market are broad and you have many competitors offering similar services or products, you will probably need to compete on price and keep operational costs low. On the other hand, if you have a high value, differentiated service or product, you may need to use premium pricing and targeted marketing. Conducting a thorough analysis will give you this insight.
Analyzing the Target Audience
Once you understand the market, you will also need to analyze the audience you are targeting. This analysis should pinpoint the what, how, and why of your customers based on their specific needs.
Analysis should reveal the perceived and real value of your service or product. You will need to think about the task your customers face and how your service or product helps with this task. What can your customers gain by using your service or product? Then, you should work to align your promotional campaigns and pricing model with why your customers would purchase your service or product. Choosing the right pricing strategy can attract customers to your business. This, in turn, positions your business for continued success.