Yes! You Need a Pricing Strategy
Wednesday June 17, 2020

Yes! You Need a Pricing Strategy

Options for Small and Medium Companies

Pricing is the art and science of setting the value of products and services in the marketplace so that money is not left on the table yet does not turn the customer away. Optimized pricing can easily increase sales, in fact, a top US based drugstore chain increased their sales by $110 million a year using enhanced pricing strategies. Whether your business is long-standing or has survived the first few years, the best way to grow is by ensuring your pricing strategy maximizes sales and profit.  

More Than Cost Plus Markup

Unfortunately, most businesses run a pricing strategy of cost plus markup. While this can work for some items, it won’t work as a strategy overall. In fact, it is one of the worst ways to run a profitable business. This ordinary way of pricing simply takes the cost of production and adds a desired profit margin, which generally leads to prices that are too low or too high and misses profit potential.

Most likely, different strategies will be needed at a variety of levels for a comprehensive pricing strategy. Here are the most common pricing strategies to consider:

  • Penetration pricing is a way to gain customers and market shares with customers but is understood that the pricing will go up in the future.
  • Optional pricing is used to sell paired items, or ‘sets’, such as a printer and ink at a discounted price. The kicker is the paired item here is the ink, which is then sold at a higher price individually.
  • Bundle pricing is similar to optional pricing with a focus on discounting the package to increase the overall number of sales.
  • Premium pricing takes a product or service using a higher price point than the same product or service so that it stands out from the cheaper options, giving the idea the higher priced item is higher quality, better value, or has a unique offering.
  • Value pricing is used to sell mass amounts of an item which has a low production cost. While profit margins are small, it is made up for with the quantity sold.
  • Competitive pricing is used when few competing items are in the market, using marketing, advertising, and reducing production costs to maximize profits.
  • Skimming is a way for items to initially adopt a higher price point, and then decrease the pricing when competition increases. This is often seen in new technology releases.

Additional Considerations

With the current events of the world, potential difficult economic times, and supply chain fluctuations, pricing strategy is critical to maintaining your business while balancing the expectations of your customers. Along with your pricing strategy, be sure to consider the following aspects of day-to-day business:

  • Identify pricing leakage, where short-term agreements may be costing your bottom line.
  • Regular communications with management and your team about pricing updates.
  • Communicating why there are any delays in stock, or changes of product brands being sold.
  • Understand that cutting prices just to keep up sales numbers is not the best approach; however, small adjustments can be implemented to help.
  • Consider what pricing strategies your team has the options and response strategies, such as longer-term agreements or payment terms for larger customers.

Who Can Handle the Pricing

Unlike marketing, finance, supply chain, and IT, pricing is a relatively niche area. Many small and medium businesses cannot afford a full-time pricing expert, nor can management staff cover all the needs to properly price products and services. This is where third-party pricing professionals, such as Pricing Advisors, can make a world of difference. Specializing in world class pricing strategies, they are experts at executing pricing strategies for small and medium sized businesses.

How the Experts Price

When looking at the pricing strategy, it is critical that the value to the customer remains higher than your cost with a balance of quantity and understanding the established market. Then with an understanding of your business growth and strategic planning objections, pricing experts work to create the right pricing approach to increase market-share, sales numbers, and profit (or all three). Within the pricing strategy consideration is given to the break-even point, which assists in the pricing strategy to take necessary risks. The best pricing strategy can also help maintain your customer base during tough economic times.

Final Thoughts

With a focus on pricing strategy led by a pricing expert, small and medium sized companies can continue to grow and develop successfully. Pricing is one of the most powerful tools, especially in today’s economic environment. Whether your business needs a sounding board, or you need a full pricing strategy implemented, contact Pricing Advisors at (267) 551-0529 or and start a discussion today.