GETTING TO THE RIGHT PRICE – PART 2

In ‘Getting to the Right Price – Part 1,’ the article outlines the three product pricing parameters that must be evaluated to come to a successful market price. They are, market value pricing, target margin pricing (cost-plus) and competitive pricing. This article follows up on these concepts with pricing scenarios and general pricing considerations & observations that may be useful to keep in mind when developing pricing strategies

Pricing and the Monopoly:

If you are the only one offering your product or service, congratulations! You have hit the pricing jackpot. And if you are meeting a legitimate market need and the value is readily recognized, you can set your price and the market’s price, knowing you have first mover advantage. However, keep in mind, sole supplier offerings usually don’t remain so for long. This is especially if the offering is doing well in the marketplace and margins are good. Therefore, it is recommended that the product offering be priced in a way that reduces the chances of market share erosion by a flood of entrants. Consider lowering your price if numerous entrants move into the space. However, never drastically reduce your price. It may alarm your customers or dampen your market position. Take full advantage of economies of scope when doing so to maintain healthy margins. Note that a side benefit of lower product pricing, is that the offering may become more accessible to larger parts of the market. In some ways, the lower product price also makes it less attractive to competitors seeking substantial and quick profitability gains upon entry. An alternative tactic is to offer price specials to existing, strategic customers to secure their continued business.

Other Pricing Observations & Considerations:

As stated in ‘Getting to the Right Price – Part 1,’ pricing is both an art and a science. Utilizing concrete external and internal pricing data is key. Data should be consistently gathered, analyzed and used to strengthen pricing decisions. Price provides both a financial and messaging tool in the marketplace. Mastering this area of the Marketing Mix is paramount to organizations seeking profitable and sustained growth. In summary, most will agree that optimizing product price is a challenging process that takes commitment and discipline. Yet they will most likely also agree, that the fruits of these efforts are well worth it. Happy hunting!

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I wish you all Happy Holidays. Enjoy the time with family & friends.

See you in the New Year!

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