You may already think you're a bit of a pricing genius?!! You may have already settled into your first few months on the job. Maybe you've got that good degree - or even an MBA? Perhaps you've moved rapidly through the ranks and have landed a pretty amazing job in the pricing world. Are you sure however that you ALWAYS utilise your skills, expertise and know-how to squeeze out those extra profits for your business?
1. You're always looking to learn
Recent research by MIT Sloan Management Review found that all companies with the best price management had top managers who championed the development of skills in price orientation and price realisation. Regardless of their industry, the degree to which managers focused on developing these two capabilities correlated to their companies’ success in achieving a better price for their product than their competitors. Without managerial engagement, companies typically used historical cost information to set prices and left too much pricing authority to the sales force.
Whether you're taking online courses, reading books and articles or attending pricing conferences, it is important to continually challenge your perceptions of pricing and learn of new ways to optimise and improve your price management.
2. You're disciplined
Price setting and price getting require discipline - not luck. Almost any business can improve its pricing performance, provided it approaches pricing in a structured way, leaves fear at the door – and that's where you, the pricing genius comes in. Pricing decisions must be embedded in robust structures and processes – which you've set up. Remember to stick to the rules and specify maximum discount levels for any given order size.
Renowned investor Warren Buffett has said, “The single most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by 10%, then you’ve got a terrible business.”
3. You're always on the hunt to opimtise prices
Finding the right price for your product or service often feels more like an art than a science. Today's consumers are more price-sensitive and cost-savvy than ever. Price a product too high and you may limit your market. Price too low and not only will you leave money on the table, you may damage your brand or, even worse, start a competitive price war. Get the price right and you're a true genius in your field.
4. You're Covering all the angles
Pricing is either cost-based, demand-based or competition-based. In cost-based pricing, you set prices based purely on production costs and the desired profit without considering the demand. In demand-based pricing, consumer research helps to ascertain the acceptable price range, then you can determine profit and cost requirements within that range. In competition-based pricing, you set your prices based on your competitors. Depending on customer loyalty, or brand differences, you might be selling at, above or below market price.
5. You know your pricing strategies
Price has always proved to be a deal breaker in whatever market you're in. The right price can mean a 'done deal' while overpricing can scare customers away. However, there are many different pricing strategies designed to reel in customers without losing a penny from your POS.
Try the following:
i) Dynamic Pricing
Also known as time-based pricing, this is a form of price discrimination in which a company changes the price of a product or service depending on some set of factors. It is common among industries such as tourism and transport when business increases or decreases greatly under sets of circumstances. Dynamic pricing allows a business to maximize its profits because it is better able to assign prices that take into account shifting levels of demand and willingness to pay.
In the travel industry, locations experience larger volumes of tourists at different times of the year. Using dynamic pricing, a hotel will raise its prices during peak season and lower them during the off-season.
ii) Psychological Pricing
Psychological pricing means setting the price so that customers have a positive emotional reaction. For instance, US gasoline prices are always listed to a hundredth of a dollar. If the price is $3.139/gallon, consumers read this as $3.13, but marketers actually charge $3.14 since they round up to the nearest penny. It’s all about perspective, and customers often see odd price values as more attractive or lower than they really are.
iii) Product-Oriented Pricing
Certain product relationships allow you to change your pricing strategy. Adding optional extras, such as airline charges for extra baggage, or selling products in a bundle, hides the true cost from the consumer. When your product has a relevant partner such as a razor and blades, you can price the initial purchase (razor) low and recoup the costs with the secondary purchase (blades). Finally, consider promotional pricing such as buy-one-get-one-free to draw customers to your product with the hope that they will continue buying after the promotion ends.
iv) Penetration Pricing
Give only one set of prices to fit all parts of the market. This will increase sales volume and market share rather than gain you profit straight away. However, by using this method you will establish a good reputation and when quality is already proved, price increases in the future will no longer be questioned. For instance, a shampoo product will be sold at the lowest price on the market - customers will try it in the hope of finding a more affordable alternative to their usual brand.
v) Price Lining
This is used for gaining attention for a new or re-branded product. It aims to make customers feel they are getting more for their money. 'Buy one, get one free' or a free sample of another product given away at the same time are the usual strategies. For example, a free tootbrush could be given away with every box of toothpaste. You will be gaining higher sales of the toothpaste and at the same time promoting future sales of the toothbrush.
Conclusion
It's not luck, it's good price management that will promote your business to the next level. As a pricing genius you'll keep an eye on the customer's maximum willingness to pay and the differential value to customers of your company's product and service. You'll implement good systems to monitor and communicate prices/permissable price deviations to sales personnel, marketing managers and other decision makers. You will also have to have the self-confidence to walk away from unprofitable deals.
Related Articles
How To Get The Most Out Of Pricing Software
Here Are Effective Revenue Management Strategies You Can Use Today
7 Proven Ways To Increase Revenue
Sources
- http://webupon.com/money-making/six-best-pricing-strategies-to-increase-sales/ by James Henry Abrina
- A. Frye and D. Campbell, “Buffett Says Pricing Power More Important than GoodManagement,” February 18, 2011, http://bloomberg.com.
- K. Mitchell, “The Current State of Pricing Practice in U.S. Firms,” (opening speech Professional Pricing Society Annual Spring Conference, Chicago, May 3-6, 2011).
- A. Hinterhuber, “Towards Value-Based Pricing: An Integrative Framework for Decision Making,” Industrial Marketing Management 33, no. 8 (2004): 765-778.
- http://sloanreview.mit.edu/article/is-it-time-to-rethink-your-pricing-strategy/
- Harvard Business Review on Pricing 2008
- http://smallbusiness.chron.com/pricing-strategy-theory-1106.html
- http://www.wisegeek.com/what-is-dynamic-pricing.htm
- http://www.wisegeek.com/what-does-a-pricing-manager-do.htm
- http://www.thinkaboutpricing.com/left-navigation/revenue-management.html