MARKETING SPECIAL Easy Steps to Creating the Right Pricing
Strategy
The easy steps you need to
know to make pricing a key component of your company's marketing mix
You can have the best product or service in
the world, but if you don't have a solid and contextually based go-to-market
(GTM) strategy and execution plan, you will fail.Marketing plays the critical role in building
brand awareness, lead generation, prospect and customer nurturing. Business
schools and countless business books discuss the importance of the 4 Ps
(Product, Place, Price, and Promotion) as the key components to a solid
marketing approach. While all four Ps are important to a founding team's
marketing strategy, the "P" I get asked the most about is pricing.
Pick the right pricing model and you can transform your goals from concept to
reality. Chose the wrong pricing strategy and you risk immediate failure.
Miriam Christof, principal at JustJump
Marketing, and pricing coach Jenny Wholly recently hosted a pricing
workshop for entrepreneurs. Creating the right pricing strategy can be
excruciating. It is a complex endeavor that brings out insecurities in the best
of us. Christof and Wholly cut through the potential rat-holes of pricing
discussions and recommended an easy to follow five-step process:
·
Increase
profitability
·
Improve
cash flow
·
Market
penetration
·
Larger
market share
·
Increase
revenue per customer
·
Beat
the competition
·
Fill
capacity and utilize resources
·
New
product introduction
·
Reach
a new segment
·
Increase
prospect presence
·
Increase
prospect conversion
Step 2: Conduct a thorough market pricing
analysis. While
the first step is grounded in your business goals, this step ensures that your
pricing strategy considers the context of the market in which your product or
service will compete. "Low cost providers like Walmart often market to a
broad audience while high cost providers like Tesla market to a specific
audience." If your market and product are broader with many players who
offer similar products or services, chances are you will compete on price. You
will "need to do everything to keep operational costs down to ensure a
maximum profits margin," says Christof. Conversely, if you have a high
value, highly differentiated product or service, your offering may be more
conducive to premium pricing, which lends itself to a different form of
targeted marketing. "With a superior product, it is important that you are
able to place emphasis on high quality marketing and customer service,"
says Christof.
Step 3: Analyze your target audience. This steps enables you
to answer why, what, and how customers will use your product
or service based on their specific and urgent needs. "Be guided by the
most important question: what perceived and real value does my product or
service bring to the customer. What is the task they are facing? How does my
product or service ease the pain associated with this task? What does my
customer have to gain by using my product or service?" says Christof. Your
pricing model and promotional campaigns must align with why your customer would
buy your product. For example, if you have a best-of-breed product that
uniquely fulfills a customer's urgent needs, value-based premium pricing may be
the best strategy. Creating low-cost promotions and giveaways will confuse your
customers, undercut your value, and shrink your profit margin.
Step 4: Profile your competitive landscape. Whether you are a
low-cost provider or a differentiated vendor, the pricing model and price point
of your competitors is a significant pricing strategy influencer. Christof
suggests the following approach for direct and indirect competitors:
·
Identify
at least three direct competitors. Study the structure of their pricing. For
example, do they have component pricing and allow for heavy discounts? Do they
bundle with other products or solutions? Or, do they employ value-based pricing
where clients pay a percentage of the total perceived ROI.
·
Consider
the substitutes a customer may use to solve the task or problem that your
product or service addresses. Find out how much these indirect competitors cost
the customer. And remember, sometimes your indirect competitor is the word
"no". Consider of self-solutions, or no resolution, as well as other
indirect vendor alternatives.
Step 5: Create a pricing strategy and
execution plan. At
this point, you have gathered enough information to formulate an action plan.
Christof identified 10 pricing strategies to consider based on your market,
customer, and competitive analysis:
·
Penetration
pricing: Price is artificially low to break into the market
·
Economy
pricing: Everyday low price with the focus on low manufacturing/delivery cost
·
Premium
pricing: High price for high value
·
Price
skimming: Go into the market with a high price, but once your competitors
follow, lower your cost and implement other pricing strategies
·
Promotional
pricing: Discounts over a period of time, one-time deals
·
Psychological
pricing: Price products or services which triggers action. For example,
charging .99 instead of $1.00
·
Versioning:
Offer different tiers for your services or products: good, better, best
·
Sandwich
pricing: High, medium and low priced item with the intent to drive customers to
the medium priced item
·
Competitive
pricing: Set the price equal to what your competitors are charging and win the
service game
·
Value
pricing: Understand the value for your customers and their willingness to pay.
Also understand what alternatives do they have
After
you have completed the five steps, take the time to work the steps backwards.
This will help you ensure that the GTM actions you chose to take give you the
best shot at successfully competing in your target market segments, gaining
revenue and market share.
BY PATRICIA
FLETCHER
http://www.inc.com/patricia-fletcher/5-easy-steps-to-create-the-right-pricing-strategy.html
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