Pricing strategy
– don’t miss a trick!
by Claire Carvall
From time to time we come across instances
where businesses are ...
of 1

Pricing strategy – don't miss a trick!

Published on: Mar 4, 2016

Transcripts - Pricing strategy – don't miss a trick!

  • 1. Pricing strategy – don’t miss a trick! by Claire Carvall From time to time we come across instances where businesses are not realising their full potential when setting prices. Sometimes this can mean missed revenue, in other cases it can Claire Carvall for a change of tack on pricing. Two good starting have a negative effect on the brand – sending a points are to review your position in the market mixed message of what it stands for. In either overall and your customers’ buying habits, using case profits can be lost. Here we take a look This strategy is commonly adopted in electron- your own knowledge or perhaps by pulling a team at the key factors to consider when reviewing ics, where games consoles like the PlayStation together to share views. your pricing strategy. are launched at a high price and then lowered as initial demand tapers off, reaching the next level The Market Both accounting and marketing hats need to be of consumers who are prepared to pay what they One well-known technique that can help you worn when setting a pricing policy – in essence perceive as an acceptable price. quickly review your business strategy and so the it’s a blend of science and art. A primary account- Skimming also works well for organisations that pricing policy you need to follow is the Boston ing concern may be to achieve a satisfactory do not expect cost savings by reaching high Matrix. Plotting against the options of “Star”, margin to recover overheads. From the market- volumes of sales, or perhaps where resources “Question Mark”, “Dog” or “Cash Cow”, whilst ing side, positioning relative to competitors and are not available to finance high volume produc- sounding a bit unflattering, can give a clear the value customers attach to your brand can tion initially. picture of the pricing strategy needed to achieve also be key. your growth, market share and profit objectives Penetration pricing involves setting a low price Pricing new products or services from where you currently sit. To find out more, to increase sales and market share. It is appropri- visit At launch, pricing is normally set in the context ate if you are selling a product or service which is of an overall strategy. Are you looking to create a price sensitive and can achieve large decreases Value Analysis Over time products and services have features added to them. Greater power, increased levels of service, more convenient forms of packaging etc. These add to costs. At the same time the way your buyers use your products, or the elements of your service that they really find valuable, can change. It is not uncommon to get to the stage where what your buyer is really buying and what you are selling begin to differ. By stepping back to focus on what it is you provide that your customers truly value, and sometimes using formal or informal research, it is often possible to remove costs which are going into your product or service for elements which the customer does not value or no longer wishes to pay for. Cutting these out may well reduce your costs. In some cases savings have enabled new market, maximise profits or steal sales from in costs as the volume of sales goes up. firms to reduce prices whilst still increasing mar- competitors for example? Most then review price Target return pricing looks at achieving a spe- gins, so considerably increasing profitability. Low levels at least annually, taking into account the cific return on investment whilst premium and cost airlines are a great example of this. impact of costs on margins and of competitor value based pricing are focused on the perceived activity on volumes. On the other side of the coin, just occasionally and effective value to the customer. you may spot that changing circumstances mean But aside from “cost-plus”, as this is known, there Reviewing Existing Products and Services that your product now has more value to it than are a number of other pricing strategies. Price you are charging for. This is often because of skimming focuses on setting an initial high price While a great deal of effort normally goes into setting prices at launch, we have found that it is fashion or legislation changes. Just think of the targeted at non-price sensitive customers who less common for companies to review the pricing market for bottled water. Or the mark-up on some are prepared to pay a premium for the new prod- strategy for established products or services. soft drinks in pubs as drink driving enforcement uct or service. The price is then slowly lowered to You should regularly ask, “What has changed in has grown. In each case the value to the cus- make the product available to a wider market. It the market since we set price levels?” This may tomer of the same product changed considerably is known as skimming as the profits are skimmed give an opportunity to significantly increase over time. off the market layer by layer. This looks a little profits, rather than simply applying a percentage more at what the customer values – the first If you would like assistance in reviewing your increase which can be justified on the basis of wave of customers are prepared to pay a high pricing strategy, to address financial and mar- cost increases. price for this ‘new’ product or service, perhaps keting objectives, then please contact your because of exclusivity or simply because it is There are a number of models which can easily regular Hyde contact or call Claire Carvall on fashionable to be associated with it. be used to help you identify the opportunities 020 7022 0054. If you would like to discuss appropriate pricing strategies for your business, please contact Claire Carvall on 020 7022 0054 or email

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