Perfect Pricing Matters for Your Company

Price is one of the first things that people think about when it comes to making a purchase. But it might surprise many people that a lower price isn’t necessarily more attractive. Your pricing strategy plays a big role in your company’s profitability, but did you know that it can also be used for a number of other things as well?

Every company should be making informed decisions when it comes to pricing, and understand the power that a price has in the mind of a consumer. There are a few ways to use pricing, depending on the goals your company has, and the marketplace you operate in.

The first thing your company has to know is what your product or service costs. This will be the base on which the rest of your decisions rely, so take your time and get a solid figure in hand.

Cost of Goods or Cost of Goods Sold (COGS) is where you have to start. How COGS is calculated will be different for every business, but once your team figures it out, the real fun can begin. Product oriented business usually have an easier time figuring out the costs involved in their business model, but service industries can also create a COGS estimate.

Without this important metric, your team won’t be able to know if a pricing strategy is going to make money at all!

That could be an expensive oversight, so make sure your estimate of COGS is as accurate as possible.

Perfect Pricing Matters for Your Company

The Power of Price

The price of your product or service can make a big difference in the market you operate in. Once your team has figured out your COGS, you can start looking at the market for strategic opportunities. Have a look at your competitors, and see how much they can charge for a product that is in direct competition with yours.

If your company wants to expand its market share, it may be able to do it by beating the competition on price. You will need to know how much your competitors have to charge to break even, and in some cases it will be possible to grow your way to dominance in your market.

But be careful of going too low, even if you are able to beat out your competition. There are psychological associations between quality, price and consumer pleasure. If you go too low in an attempt to edge a competitor out if the market, your company runs the risk of appearing like a cheap product, and damaging your brand.

This isn’t a straightforward matter, and there is a lot of market research that needs to be done before your company decides to try and use low prices to expand market share, or triumph over a competitor.

For example, if your company makes a generic cleaning product, then moving your product at low prices could easily get you the expanded customer base you want. But on the other hand, if your company makes organic body soap, aggressive low prices may just end up hurting your brand image.

Stay On Top

When new competition enters one of your established markets, or there are inflationary pressures, your company needs to know how to use pricing to defend itself. The most important thing is knowing your costs, so your team can offer the best prices possible.

In an inflationary environment, or economic downturn, your customers will be looking for the best prices on the market. Consumers will remain loyal to favorite brands to a point, but making sure that your product or service is delivered at the best price level will help people to keep buying it, and not look for substitutes. Here are 5 ways you can keep your customers loyal to your brand.

This can be tricky when it comes to maintaining a brand identity, and that is why major brands choose to sell smaller package sizes when inflation starts to bite. No one wants to pay more, and the first company that has to up their price risks alienating customers.

Look For Opportunities

Keeping a close eye on profitability can also be a benefit when it comes to making sure that your company makes as much as it can on every sale. In many cases, the amount of revenue your company produces may not be as sensitive to price as you might think. While it may seem counter intuitive, in some markets, a higher price will actually generate more sales.

According to recent Psychological research on consumer spending habits, in the absence of easily comparable features and benefits, many buyers use price to determine the quality, and thus the value of a product.

If we look at the above example of budget friendly cleaning product and luxury body soap, for the former a higher price is more likely to hurt sales, but for the latter, a price bump may attract new clients.

Luxury body soap is a product that relies heavily of a buyers perception of quality, and not necessary on the value of the ingredients that it contains. Conversely, economic household cleaning products aren’t really dependent on the brand image, as much as they are on how well they work, and their cost.

A Complex Question

When pricing is looked at with an accountant’s attitude, there may be something lost. As the example above shows, in some cases a low price can be a benefit, while in others it can do damage to your brand identity. 

Before your team decides on a price to hit the market with, it is a good idea to develop a comprehensive list of all your competitors, and their pricing structures. For B2C companies this shouldn’t be too hard, but for B2B, and especially B2B service companies, this can be a hassle.

In some cases there will be market research available to help your business get a handle on the competition, or in other cases it might be easier to do your own research. Keep in mind that a lower prices isn’t necessarily going to deliver higher sales, but it is almost always going to appear to be a low quality product, especially for new brands.

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