Pricing methods and strategies provide the quickest improvement to the profitability of a business but many businesses are unknowingly giving away profit.
When adjusted immediately, the effect flows straight through to your bottom line. For example, a simple pricing change generated an extra $80,000 in profits in just three months for one of our clients and there was no reaction from their customers.
With that said, here are 4 pricing mistakes to avoid:
Mistake 1: Price is too cost-orientated.
Focus on knowing your costs and then connecting these with your price. It is equally important to understand the value you are offering and the dynamics of your market.
Customers will pay for perceived value which is why there should be strong links between this 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.
What makes your firm a better business to deal with compared to your competitors?
Mistake 2: Price is not revised often enough to reflect market changes.
Changes in availability or price of competitor products, availability of substitutes, sudden changes in demand, are all good reasons to review your price.
Many businesses absorb the GST because they had a bigger problem with their price than their customer.
But remember, when price is too low, you lose profit which is why you need to identify the key indicators that have influence on your price and regularly monitor these.
Mistake 3: Failing to take into account other marketing mix elements.
There needs to be a relationship between the perceived value of your product or service and the price you charge for it and so the product 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: the more elaborate the packaging, you can be sure, the higher will be the price.
Mistake 4: Charging the same price in all market segments.
This results in failing to understand the different market segments you serve.
Some segments will place a much higher value on your product or service than others, their perception of value will be determined by their need for convenience, what the product or service actually provides for them, or how important this is.
Take note – where the perception of value is high, you can charge higher prices.
The Next Step: Review your pricing strategies.
If you feel you are too close to your business then invite a firm such as ours to take an independent review of your pricing system to help you to examine your pricing, customer relationship management strategies, objectives, and key performance indicators.