Plenty of revenue is lost through inefficiencies in business. Close to the top amongst the profits that could have been … but did not, inadequate pricing strategies is a major cause for many companies to miss out on the 'low-hanging fruit' / “leave too much money on the table” from direct sales to their established customer base.
Pricing Analytics is more than just pulling up facts for marketing; instead of enticing customers to buy, it delivers hard data on what they buy, what segments of the population make these purchases, where and how often, and their primary concerns which influence the decision to buy. Remember that customers purchase products and services to fulfill a need, and that price is merely a “quid pro quo”.
Price Sensitivity is the measure of what it takes for a customer to pick up a product or just walk away towards the nearest competitive brand. The price is a strong motivator, but there are other factors that they may deem equally important. Many people, in fact, are willing to pay more if the product is something that they deem particularly valuable.
In theory (and indeed in practice), the demand curve, linking demand to price most of the time has a 'sweet spot' between increased demand for lower priced products or lost margin… but it is often difficult to find it without the proper tools and analytics. Real life customers often look beyond just the price tag when deciding to buy.
These are some of the questions that help define value of a product compared to its list price:
1) Is this is a brand that I trust?
2) Is the quality the same or better than its competitors for the same price?
3) For the same level of quality, do I get more for the same price?
4) Does it come with other items I may find useful or valuable?
5) Will it save me time and effort? Or, is it worth looking elsewhere for a better deal?
6) Will buying this improve my lifestyle, social status, or self-esteem?
7) Do I actually have the spending power to purchase this product?
- and so on.
The main aim of pricing research and analytics is to figure out your price positioning relative to your target market's expectations, your competitors' activities, and to track the actual performance of your existing pricing strategy. Finding out where your offered price and your customer's value drivers align is the key to maximizing profit for every sale.
From Value to Increased Demand
Many companies remain unaware of their customer's value perception, and apply ad hoc pricing strategies like competitor based pricing or undercutting, or cost-plus pricing. A coherent pricing strategy must leverage pricing analytics to maximize value positioning.
Value propositions is a combination of attributes & results your customers get from buying your product (from hassle in getting it to ease of use and satisfaction from outcome…) price and value perceived will then define wether he or she feels he or she is getting a good deal. Increasing demand from your products is not just a matter of reducing pricing or going into a promotions spree. If you identify how much value your targeted market segment gives to your product and what their primary value drivers are, you can then enhance how much they feel they'll be getting their money's worth.
This is usually the best way to increase demand without having to lower prices. It is also possible to move ahead of your competitors even if you increase prices. The sense of Value is the most important, not just the price tag.
The problem with new pricing strategies however, is that measuring the effect of pricing changes might take some time and involve plenty of trial and error. This is why apart from gathering data, coordinating sales and income reports, and tracking results, a pricing analytics suite should have the capability to model customer response. Real-world monitoring and cloud-based updates are now essential tools.
This is where a pricing consultant really helps. Pricing strategies should be undertaken to fulfill definite objectives. Do you wish to improve your market share? Increase profits? Increase demand? Reduce profit loss through inefficiencies or improve your sales force? It's time to go proactive instead of just pricing to the status quo.
PrivalEdge understands the different Pricing/Value approaches that can help you with product positioning, appeal to different markets, and further your business goals. They will be with you every step of the way to make sure that both you and customers get the best deal available.
Learn more on http://www.privaledge.net/services/pricing–value-capture