Pricing strategy – don't miss a trick!
Published on: Mar 4, 2016
Transcripts - Pricing strategy – don't miss a trick!
– 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-
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-
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 email@example.com