Want to build your company’s competitive advantage, stimulate growth during a lull in business, and at the same time exceed your customer’s expectations? How about improving your pricing. Getting pricing right is one of the first steps towards proper product positioning, generating curiosity about your product, increasing consumer’s motivation to buy and achieving profitable growth.
In this current post-pandemic era, there is a great need for companies to solidify their financial standing that has been eroded by the coronavirus and the resulting stay-at-home protective order. Having sufficient funds in your coffers to a large extent helps keep a business afloat and the day-to-day operation running smooth and fine. Now the challenge is how can you make significant improvements to your current prices in the face of shifting customer expectations, increasing commoditization of products and services, and higher competition? The simple answer is you need a skilled pricing strategy consultant to help you navigate these myriad of challenges.
Pricing Strategy Consultants: What precisely do they do?
When setting prices, several companies use cost-pricing to calculate their cost and then add a specified margin to that. Another tactic is to price based on what the competition is charging? These two pricing strategies are flawed and won’t help you extract as much value from your customer. The best way to price is to use value pricing; this method has been proven time and time again to be more effective in achieving pricing excellence. Here, you set prices based on the value you are offering to customers. When a pricing strategy consultant is involved in your pricing process, these are some of the ways they effect changes in your pricing that would increase your sales and profits.
Analyzing consumer trends: The reality on ground is the competition is getting tighter and tighter by the day, thanks to the internet and digitalization. And this has contributed to the constantly changing consumer behavior and needs. To make the right changes to pricing that would boost sales and profitability, a pricing consultant thoroughly studies consumer trends to identify opportunities that can be tapped into for immense financial returns.
Analyzing the industry and competitive landscape: Before concluding on what pricing strategy is best at a certain time, one of the first things a pricing strategy consultant does is analyze market trends and the policies used by rivals. He/she will also investigate current consumer behavior and the impact competitors’ pricing has on your margin and market share. Last but not least, with the aid of forecasting tools, the consultant will try to determine what effect any proposed new pricing change will have on your sales, market share, and profitability.
Ensuring your pricing is consistent with your marketing strategy: When your pricing strategy is at loggerheads with your marketing plans, it’ll be hard to get the desired result that you want. For instance, if you have a product or service that offers a high value to customers and you want to charge a premium for that (which is to be expected), your marketing strategy should take into account your high-value offering and premium pricing. Ideally, the marketing campaign, messages, incentives, and the customer segment you target should differ from that of cost-based pricing.
Developing a dynamic pricing strategy: In this ever-evolving marketplace, it is advisable for businesses to have a dynamic pricing strategy. This particular strategy is one good way for your company to stay flexible. It helps you adapt quickly and reduce your reaction time to unexpected market development while remaining profitable at the same time.
Why hire a pricing strategy consultant?
Setting a price that would extract the greatest value for your product offering is not something that can be done through guesswork. Pricing is technical and requires quantitative and qualitative analyses of various market factors if you want to reap maximum gains. It is wise you work with a pricing expert to develop the most effective strategy. The end results will usually cover multiple times any costs you have incurred in hiring a pricing consultant. The following reasons are why you consider hiring a pricing expert:
To set the right price: This is usually the main goal most business owners want to achieve when hiring a pricing consultant. Achieving pricing competence is actually a more daunting task than most people think. You want to consider the impact a proposed price will have on your brand positioning, sales volume, and profitability. The essence of doing this is to find the best point that would maximize these vital factors.
To save time and create effective solutions: The amount of knowledge that a pricing specialist has acquired will always make him or her analyze problems better and faster than someone who has no experience or expert knowledge of the field. They are also able to create the most effective solutions and because this is something they do every day and that kind of exposure has the advantage of horning their price-setting skills. By bringing in a pricing expert who has the relevant experience in your field, you can gain pricing efficiency quicker and allocate your time and resources to other business areas.
To retain existing customers and attract new ones: A pricing specialist will assist you in developing creative and dynamic prices that would pique the interest of curiosity of potential customers as well as those that haven’t bought from you in a long while. Not only that, but a creative pricing strategy will also help you attract new customers and retain them.
Pricing strategy in practice
Two professors – Jagmohan Raju and John Zhang – from Wharton business school, carried out research on the impact of pricing on the profits/bottom line of a business. While their findings confirmed what many believed – that pricing has a positive effect on a company’s earnings, the extent of the impact was very surprising. For instance, data collected revealed this interesting info:
A 1% decrease in fixed costs raises profitability by 2.3%
A 1% hike in volume increases profits by 3.3%
A 1% decrease in variable costs net a profit of 7.8%
However, a 1% increase in pricing boosts profits by an impressive 11%
In the real world, we can see the findings of the professors confirmed when Starbucks, the coffee powerhouse, raised the price of some of their offerings in 2020. According to the company, rising labor costs and other non-coffee commodities made it necessary for management to review their prices. So, the company raised the price of all its beverage products by an average of 1%. Sure enough, during the third quarter of that same year, the company’s net income rose by 25% to USD 417.8 million from USD 333.1 million the previous year.
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