Building A Creative New Pricing Strategy To Boost Businesses Growth ✨
Pricing is one of the most important aspects of a business, yet it is an area that can often be overlooked. How a company values its pricing department can make or break profitability, especially when market slowdowns and economic disasters turn traditional predictable pricing mechanisms on its head. We’ll be discussing creative ways to build a new pricing strategy for your business.
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New Pricing Strategy – Special Pricing Strategies for Resilient Businesses
Research shows that companies that prioritise their pricing teams along with their customer’s needs end up being the most profitable and resilient. What matters is the ability to adapt to fast-changing landscapes. This is especially true during the pandemic when everything has shifted from the norm.
As the times rapidly change, traditional strategies may no longer be viable. Companies need to innovate a new pricing strategy so they can not only stay afloat but also begin to thrive. The following are some important aspects and creative structures that a business can make in order to grow in any situation.
Customer Satisfaction
The most innovative and adaptable companies will first address customer needs. This goes deeper than discount offers on products and services. Businesses need to preserve value, especially through difficult times.
Creating strategies beyond dropping your prices enable the realisation of value. It upholds and builds long-term relationships with customers. Here are several initiatives that your business can take when building a new pricing strategy to ensure customer satisfaction and maximise margin:
Product line pricing
Say, McDonald’s releases a new value meal or burger. This new sandwich needs to be at a price within the other burgers’ price range. Truth be told, if it’s unreasonably priced higher, the new item won’t sell well. That’s because customers will likely choose the lower-priced items in the long term.
Flexible Offers
During uncertain situations, customers will want to preempt financial instability. This will make them more cautious with spending. In order to address this concern, it’s a good idea to allow flexibility.
For example, extending payment terms might give them the opportunity to manage cash flow better. Your customers may also appreciate added protection terms that will hamper volatile costs or unforeseen charges. Likewise, there are alternate channels to lower costs in exchange for slight delays.
Being negotiable establishes value for customer satisfaction, instead of risking customer churn or switching to an alternative. This method focuses on profit margin rather than sales volume and gives incentives to sales teams. More commonly, car industries and other wholesale services use this pricing method.
Bundle pricing is a method applied to a product in combination with another item. This is common in software or Saas, telco services, household items, and fast food value meals.
Dynamic pricing isn’t always favoured by customers. It’s because prices vary greatly from time to time and obviously, they prefer price stability. Uber, Grab, and other book-to-ride services often offer lower rates on a regular basis. But during peak hours of traffic or harsh weather, they take advantage of the demand.
Penetration pricing introduces a product at a low price to maximise its customer reach. It’s supposed to entice customers to switch to your brand. But research shows that starting at a higher price along with innovative product feautures and well-thought-out marketing boosts investments and reach.
Competitors will likely have a hard time competing against innovation and simply lowering prices to encourage customers to switch won’t be the wisest move. More importantly, customers also prefer to pay for higher prices if the product is significantly better.
Cost Plus Pricing is based on a fixed sum or a percentage of the total cost of creating a product. Then, it’s added to the selling price. Here’s the formula:
First, calculate the total cost: Fixed costs + variable costs = Total cost
Second, calculate the unit cost: Total cost / number of units = Unit cost
Third, calculate its markup price: Unit cost * Markup percentage = Markup price
Lastly, calculate the selling price (SP): Unit cost + Markup price = Selling Price
Economy pricing keeps costs as low as possible for customers who care more about price/savings than the product or its quality. We see this is quite common in pharmacies, grocery stores, and the airline industry.
Value-based pricing
It unlocks value drivers in customers. That can vary in terms of the solutions you provide and how you help customers achieve their goals. Are you raising their social status or saving a huge chunk of their time?
This is applicable to luxury items like jewelry, high-end clothing or accessory brands, and premium alcohol. Basically, you need to show clients and build trust as to why your products are worth the high price. You’d be surprised what buyers’ willingness to pay in auctions and luxury pricing teach us about value.
Competitive pricing monitors competitors in the market as they apply price changes, discounts, and other promotional offers. You often see this applied in industries for household products, candies, grocery items, and beverages.
Price Skimming
Say, you developed a new product that is highly anticipated, innovative, and has no competitor. In this case, skimming is the best tactic. We often see this in technology, gadgets, and gaming industries. That familiar scenario of customers who can’t wait to get their hands on the latest Apple or Samsung phone. In fact, most people are willing to pay at any price. Even after knowing that in the next few years, there will be another “new” or updated model set to be released.
Temporary Offers
Another method of adjusting prices without losing value is by offering temporary discounts or promotions. This is a better alternative to slashing prices since it has the added benefit of preventing price wars on top of preserving value.
Your business can use temporary offers at any time to drive sales. However, it’s important to be strategic about when or how often you offer discounts. occasional freebies on monthly national holidays or celebrations.
Adjusted Offers
When economic downturns occur, one of the key factors in successfully satisfying customer needs is by understanding their buying patterns and behaviour. Once markets start to slow down, you can adjust your pricing strategies accordingly while taking into account these insights.
Tailor your messaging and offerings in accordance with what your target market would need in difficult circumstances. Some pandemic-specific offerings include home delivery of supplies, work from home furniture, cashless payments, and no-contact delivery.
New Pricing Strategy – Focus On Your Pricing Discipline
Businesses that thrive tend to be those that prioritise their customer needs and interactions. They also need to maintain discipline in their sales and pricing teams. Building better pricing discipline for the get-go can ensure you won’t have to make too many pricing concessions.
Clarify Pricing Guidelines
Tightening and clarifying pricing guidelines allows your teams to understand the pricing concepts behind your products. This prevents unnecessary and unprofitable price concessions. Apart from that, it also streamlines sales processes.
Pricing guidelines will outline how and when to shift tactics towards more strategic investments or towards temporary discounting practices. It will also help sales teams understand the need for a balance between making more money and meeting customer needs.
For instance, price leadership is applicable in an oligopoly where the industry leader sets a price. Then the rest of the competitors or brands follow suit. It’s also possible that there are a few leaders in the market while the others sell similar products.
Monitor Pricing Functions
Pricing functions are essential to monitoring profitability. It helps us understand where we fail to establish value. This means monitoring if discounts and rebates are eating into your overall revenue. Proper tracking of price functions can also help you adjust to fluctuations in demand and supply.
For instance, a one price or fixed pricing strategy is applicable if you’re selling large volumes of products. However, because there is very little room for flexibility, you must monitor if there are any customer behaviour changes and trends. Otherwise, competitors will use this opportunity to set a better price for their products and cause customer churn.
Contract Negotiations
Negotiating contracts must be done in a detailed and clear. That’s both for tough situations or in average business deals. This is because you need to address clients’ fears and help them understand the shifting economics of the time. Contracts should include seller protections to account for volatile input costs. Businesses can implement index-based pricing and pricing structures that account for shifting market costs.
Review Pricing Policies
Successful businesses constantly review their pricing policies, how effective they are, and the changes that need to be made. In fact, active review allows businesses to quickly adapt to changes and take necessary steps to compensate.
For instance, when demand drops, minimum order quantities or MOQ’s can be lowered. Businesses can add system flags to quoting systems. This allows better enforcement and monitoring of margin floors or freight charges. Pricing policies can also help businesses monitor renewal rates and win-loss.
Pricing Capabilities
Slowdowns or downturns can actually be an opportunity to invest in the future of your company. Effective pricing leaders are the key to unlocking pricing excellence. Businesses can do this by encouraging value-selling capabilities – which can look different depending on the situation.
For example, B2B selling is more common in a remote environment. Channels and tools need to be utilised to support this shift permanently, such as setting up e-commerce platforms. Investing in value-selling training modules and materials is one important way to do this.
Another key is to upgrade to advanced analytics. This helps you to gather comprehensive insights and adjust for market demands, price sensitivity, and pricing dynamics.
Reviewing Impact and Incentives For Your New Pricing Strategy
Research conducted during the pandemic showed that adjusting incentives can help boost margin growth. At any time, incentives can help salespeople enforce value and reach price targets. Your business must find the right balance in order to maximise profitability and motivation within your sales teams.
Reviewing impact is also important to allow companies to evaluate bold moves and prevent price increases that can trigger “war games” instead of enabling margin growth.
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Bottomline
Investing in your pricing capabilities can be the turning point for your business to grow instead of just surviving. In order for this to happen, you need to invest in your pricing teams. They have the specific skills necessary to carry out these changes and ensure your company maximises its resources.
For a comprehensive view on maximising growth in your company,
Download a complimentary whitepaper on How To Drive Pricing Strategy To Maximise EBIT Growth.
Are you a business in need of help to align your pricing strategy, people and operations to deliver an immediate impact on profit?
If so, please call (+61) 2 9000 1115.
You can also email us at team@taylorwells.com.au if you have any further questions.
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