Posted By IndustryArchive.Org on 03/25/2018 Pricing Strategy

7 SureFire Pricing Methods to Drive Profits

By: Robert Hennessey

7 SureFire Pricing Methods to Drive Profits

The following are proven business pricing methods used in many types of business-to-business industries to produce profitable sales. There are also specific pricing strategies for promotional and discount pricing, as well as, new product pricing.

1.  Competitive Pricing
After surveying your competitors’ prices, you can use their average or mean prices on which to base your prices. You can decide to price above, below or the same as your competitors depending on your overall marketing and pricing strategy.

Note: This pricing method assumes your cost structure is identical to your competitors, it does not guarantee you will be profitable only competitive.

2.  Cost plus Mark-Up Pricing 
This pricing method focuses on your cost structure as a starting point to build your price list, not your customers’ prices. Knowing your costs, you add the amount of profit margin you want to realize by each product/service you sell. Note: This pricing method will assure you achieve a predictable profit margin per unit sold; it will not guarantee selling prices that are competitive either with your competitors or with the perceptions of your customers possibly stifling sales and total company profit.

3.  Perceived Value Pricing
This pricing method bases the product/service price on the compelling value to the customer, relative to alternative products in the marketplace.

Note: This is similar to competitive pricing but gives prominence to the customer's perception of the competitors pricing.

Note: This pricing method requires market research to determine real customer perceived value.

4.  Cost plus Perceived Value Pricing 
Sometimes called market-oriented Pricing this pricing method combines Cost plus Mark-Up and Perceived Value pricing to mitigate the drawbacks to each. It starts with the product/service cost and then adjusts the final markup with a price relative to both the competitive and customer market price environment and not just an arbitrary profit margin percent markup.

5.  Premium Pricing
 Use a high price where there is a uniqueness of the product or service. This method is usually evident where a substantial competitive product/service advantage exists.

6.  Psychological Pricing
With this method, it is a combination of factors such as perception of product quality, popular price points, and what the consumer perceives to be a fair value that is used to construct the price. This pricing strives to promote a positive psychological impact on the customer. A typical example of this type of pricing is selling a product at $19.95 rather than $20.

7.  Economy Pricing
 This is considered a no-frills low price. The cost of marketing and manufacture must be kept to a minimum to make this a viable price strategy. Private label or off-brand products use economy pricing to offer prices lower than well-known branded products.

Selecting the appropriate pricing method for your business requires analysis and weighing the particular circumstances your company operates in including your cost of goods, overhead, competitive market conditions and general economic environment. Remember what is right for someone else's business is not likely right for yours.

Pricing Strategy Matrix

The B2B pricing strategy matrix below can help you evaluate price, perceived value, and volume to construct an informed pricing strategy decision.

While developing your B2B pricing strategy, it is important to remember that there is an implicit relationship between price, value, and volume. In preparing your pricing strategy, it is also essential to recognize the dynamic market relationships between price, perceived value, and size, or quantity.

Customers usually will pay higher prices for things that have a high-perceived value and are scarce regarding quantity available like an exclusive product or service. At the opposite end of the spectrum, we expect to pay low prices for mass-produced items that are not readily distinguishable among competing brands like copy paper.

Determining a value price is a little more difficult because one person’s value could be another person’s luxurious, or yet another person’s perception of cheap. So how do you determine the right price for your products or services? It requires taking into account all three factors of price, value, and volume to achieve the right balance of all these factors to maximize customer acceptance and your sales and profits.

Pricing is customer centric and therefore, you should not rely on what someone else tells you are appropriate for your customers. Their customers are usually not the same as yours. Test your pricing strategies to confirm what works best for you, given your cost structure, profit goals and what your specific market will consume at various price points is essential.

There are many options and methods to establish the price of your products or services. The pricing strategy matrix (chart below) takes into account three attributes of setting a price, volume, perceived value and price in a range of each quality type. You can use the chart below to:

  • determine where your current pricing places your products or services on this chart

  • re-assess your pricing to your pricing objectives

  • compare your pricing chart to that of your primary competitors to gauge your relative product/service pricing position in the marketplace

Pricing Strategy Matrix

Download Pricing Strategy Matrix Chart

Bottom Line
A thorough analysis of all the critical factors to consider will lead to the best decision for your business.


More Pricing Information 

How to Produce a Profitable Bottom Line with a Proven Pricing Strategy

Popular Promotional Discount Pricing Methods that Work

Boost B2B Profitability with 6 Smart Pricing Guidelines

When Is a Low Pricing Strategy Good for Your Business

Why You Need to Display Prices On Your Website

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