A lot of companies lose out on potential profits by pricing too low, lacking understanding of what a customer is willing to pay for goods and services that they want. Many ad hoc attempts to improve income can fail or backfire without this awareness of customer value drivers.
Whether your objective is to increase your market share, improve bottom line, strengthen your resources and capital availability, or just meet sales targets, make sure your pricing strategy relies on value-centric predictive models.
The Targeted Pricing Strategy
For example, imagine for a moment you owned a retail store. You have a vast array of products on the shelves. At any time you could raise or lower prices to a reasonable extent. Some of these products aren't selling well. Should you lower prices to make them more attractive to buyers and grow volumes? Or Will your customers allow you to raise prices without changing the (low) volumes and improve margins?
is running a retail store just subject to the whims of customers? Or can you actually influence / predict how pricechanges will affect demand & bottom line?. Raising prices might cost you a sale and have them walk towards your competitor or could simply result in higher margins.
Pricing & Value management science can help develop better (not perfect… but better) ways of managing this fine line.
Why is that product not selling? Is it because of the packaging? Is it because other products are cheaper? This means that the product does not feel particularly valuable to your customers. Lowering prices might make it look even less valuable. Remember the old saying, caveat emptor – let the buyer beware. As you lower the prices, it influences what the customer may believe about the quality of a product.
You need to be more value-conscious than just price-conscious. Even the customer that professes to be a bargain hunter will often judge products based on
a) how much can be obtained for a given price;
b) the quality of the product for the price;
c) and the time and effort spent obtaining the product.
Meanwhile, the customers who are in a hurry or want the best quality items will hardly be moved by the lower price. In fact, raising prices of better quality items would make those lower-priced items look much more attractive without changing their price.
Customer segments more concerned with quality will likely not even notice the slight change in price, meaning improved profits at no loss to your sales volumes. Price-conscious customers would pick the lower-priced item because it appeals to what they deem valuable. People who buy according to need feel privileged by being offered choices. Some items or stores do better when they serve as status symbols.
In general, this is why people don't obey the bell curve of pricing and demand. Lower prices don't mean increased sales. With Pricing/Value research you can understand how customers make purchasing decisions using both logical and emotional factors.
Customers are not a monolithic block. Effective pricing strategy takes advantage of the fact that different people have different priorities, and will pay more as you meet their specific needs…. By providing different / targeted value propositions (.. at different prices)
When you make changes to your pricing strategy; no matter if you work in retail, business to business, or as a manufacturer; remember that maximum profit lies in appealing to specific market segments. You can often adjust prices to appeal to one segment without impacting sales in another.
Effective Pricing Policies are Value-centric
Value capture is about offering customers the best price they can afford for the level of quality they can expect. This is how you can raise prices while still keeping all your customers. It is also how you can improve sales and manage the image your product conveys. How can pricing research help you meet your objectives?
Do you want to increase your market share? Always trying to undercut your competition can be unsustainable, and worse yet- impact the perception of quality of your product in the eyes of your clients.
Do you want to strengthen your business resources and capital availability? Are you really getting the most out of your marketing investments?
And of course, developing and releasing a new product is a key moment when awareness of customer needs / value drivers, competitor performance on key attributes, and willingness to pay may be the difference between success and failure.
PriValEdge can help you significantly improve your bottom line with improved pricing policies and better client conditions.
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