When was the last time you had a serious review of the pricing of your products or services? More than just ‘overall I make a profit at these prices’?
Pricing is a fundamental element of business operations and is often one of the most overlooked.
The amount that you charge for your products or services can have significant implication on not just your bottom line, but also growth, public perception and even opportunities for new markets.
There are a number of basic models and strategies that can be used to determine the price of what you sell,
- Cost Plus
- Going Rate
- Value-Based Pricing
- Penetration Pricing (lower prices to get into the market)
These models are certainly helpful, and each come with their own benefits and drawbacks. For example, the Going Rate model can be especially dangerous, leaving your business open to hostile pricing battles for market share.
However, the pricing decision is so much more than just a simple arithmetic equation. It is the consideration of all the surrounding market & customer factors that will give you the perfect pricing point. Some of the questions you should be asking are:
- Will a higher or lower price point stagnate or boost future demand?
- How exclusive or differentiated are my products – how does this impact my pricing point?
- What is my price elasticity of demand?
- Will my products be perceived as inferior at a lower pricing point?
- Will prestige boost demand if I price higher than the market?
- Should I price based on product mixes (lower margins on one product to achieve higher margins on another)
These are just, but a few, considerations to review and analyse when determining your pricing points.
This is a process that should be completed annually at a minimum. The market is not a static place – and failing to keep your finger on the pulse can leave your business in the dust.
Here at Adrians, we would love to help you rethink your pricing practices. Contact us today to start the conversation.