Your pricing strategy can make or break your business; too much and you can lose a valuable customer, too less and you can lose substantial revenue. Our consulting experts make sure you don’t lose either.
What is a pricing strategy?
A carefully planned pricing strategy strikes a balance between your overall cost, markup, and the value given to the customers. To choose an optimal pricing strategy, you need to understand your offering’s position in the market, your competitor’s pricing, and the pricing pressure in the market. Additionally, you need to know market conditions, demand and supply, customers’ ability to pay, and the overall consumption of the offering by a market segment to determine the right pricing.
Why do you need a pricing strategy?
Many growing companies don’t realize this, but pricing is one of the key components of building customer loyalty. Your customers can tell when you are putting profitability over value. The extra dollars on a service can make you lose a potential loyal customer who could have given you years of his trust and money.
Without a proper pricing strategy, you are aiming in the dark and that reaps no substantial results in the long run. You will either charge too much or too less and both may not help you build a strong customer base. You need a pricing strategy that gives your customer the value they deserve and your business the profitability it needs to survive in a competitive industry.
Your pricing will reflect how much you care about your customers and how you view your competitors. So it shouldn’t be a haphazard decision. It should be an informed and careful selection that represents your business identity, branding, and overall financial position.
Why choose us for your pricing strategy?
Our perspicacious consulting team helps clients build financial stability through carefully selected pricing margins that do more than just bring revenue. Our pricing strategies are geared towards helping you garner long-term customers.
At Winhall Mill, we like to use tested and proven pricing models to predict the best possible margins for different market segments. Choosing tried-and-tested models enables you to deliver the right value to the customers while garnering ample revenue in the process. We look into everything from market conditions to your customer’s ability to pay for an offering before we outline a pricing strategy for a market segment. Different segments may benefit from a different pricing strategy based on customer demand and other market factors. Our consulting experts take into account the varying factors to help you target specific segments.
We don’t just lay out the pricing blueprint. Our goal is to help clients:
– improve overall cash flow
– reach maximum market penetration
– get a bigger market share
– Increase profitability per customer
– increase potential leads and their conversion.
Step 1: Understand customers buying behavior (consumers or B2B customers)
We start with your overall business goals. We determine how your business is generating revenue and highlight the weak points that need to be addressed. One of the first analyses we do at this stage is to measure the price elasticity. It helps us determine how the price change may impact customer demand.
We look into your core customers’ buying behavior to determine the maximum and the minimum price they are either willing to pay or are capable of paying. We use Google consumer surveys and a blend of other customer feedback models to test 5-6 minimum and maximum price ranges that the customers are willing to pay. Our surveys typically include both open and close-ended questions. However, based on your specific business needs we may decide to choose a drop-down menu, ranking, image-based, or Likert scale questions. In this step, we may conduct the following type of surveys:
The Van Westendorp Price Sensitivity Survey
For the Van Westendorp Price Sensitivity survey, we ask potential customers about the optimal price of the offering. Some questions within this include:
1. What price would you consider to be expensive for the offering?
2. What price would you consider to be too low to consider the offering cheap?
3. What price range would you consider expensive but still consider buying?
4. What price would you consider to be a great bargain?
With the answers, we draw a graphical visual like the one shown below to determine the optimal price range.
This analysis too includes asking potential customers about their willingness to pay different prices for a particular offering. From the answers, we plot a graph and see how demand and revenue shift given a certain price. This method helps us measure the elasticity of the price and helps our consultants see how demand can vary with price. However, this type of analysis works great when you already know how much potential customers are willing to pay. When you begin with preliminary research, this analysis further helps refine the pricing decisions.
With Conjoint Analysis, we allow the participants to consider varying factors about the offering and its price. Through this analysis, our consulting experts are able to uncover buyer preferences and use that data to choose product features, predict product adoption and market shares, and estimate the optimal price that the consumers will pay.
During this analysis, we break down the offering into its different components and then test different combinations of those components to uncover consumer preferences.
We test prices against different market conditions, including competitor pricing and supply and demand. Whether you are selling directly to consumers or to other businesses, our consulting experts will test out prices in each segment to determine the best long-term pricing fit for your offering.
We are living in the age of transparency where consumers can compare prices online and find the cheapest alternative. This can seriously harm your position if you are not careful about the pricing margins. Our consulting experts conduct a thorough competitor analysis to learn more about competitors’ offering. The value of the offering should always exceed its price. Based on your competitor’s pricing model, we determine whether to highlight the value or lower the prices to give consumers the cheaper alternative. The goal of competitor analysis at this stage is to learn more about your competitor’s current pricing strategy and predict their future pricing so you can be prepared.
Step 3: Configure-Price-Quote model
CPQ is one of the most reliable tools in sales to generate accurate quotes for services. It essentially removes the guesswork and human error from conventional estimating processes. We use CPQ applications with other sales tools such as ERP programs and CRM platforms. Quotes generated through CPQ are automated and based on predefined factors that include optional features, different quantities, discounts, and other customized features of an offering to generate an accurate price. With CPQ, we help clients:
– generate 10 X faster quotes
– generate faster ROI with accurate quotes
– build recurring revenue.
Step 4: Pricing strategies
After measuring price elasticity, competitor pricing, and customer buying behavior, we chose a pricing strategy that best fits your specific offering. The goal is to have a pricing strategy that keeps your offering inelastic or stable in demand even if the prices fluctuate.
Some of the pricing strategies we may choose for your offering include:
– High-low pricing
– Competition-based pricing
– Dynamic pricing
– Cost-plus pricing
– Penetration pricing
– Skimming pricing
– Premium pricing
– Project-based pricing
– Value-based pricing
– Geographic pricing
– Psychological pricing
– Bundle pricing
– Freemium pricing
Step 5: Custom Financial Models for value-based pricing
Value-based pricing helps you set prices based on the perceived value of the product or service rather than its cost or historical value. Value-based pricing gives you a competitive price margin that ensures substantial revenue over time. Every business is different and therefore may require a customized financial plan. We help B2B companies develop custom financial models using excel and other modern sales tools and tactics to generate a comprehensive pricing plan for value-based pricing.
Step 6: Strategy simulation
We use simulation techniques to experiment with 5-6 price ranges we test in step 2. We use interactive and visual models to test the prices in real-life market scenarios. Additionally, these prices are tested for different market segments as all segments do not respond well to the same pricing strategy.
Step 7: Strategy implementation
After successful simulation, we implement the final pricing strategy across company-wide offerings and measure their results for a four to six-month period. This enables us to see whether the implemented pricing draws the expected revenue. If not, our consulting experts go back to analysis and identify the areas not responding to the strategy.
Our job is only done when your market responds to our strategic pricing endeavors, bringing in the revenue you expect to see for a specific offering.