From customers’ changing product preferences to growing competitive pressures and supply chain management challenges, the road to profitability for manufacturers can seem long and full of potholes. One thing we know with certainty, however, is strategic pricing will improve profitability despite the many bumps along the road.
What is a Pricing Strategy?
Pricing strategies are different ways to price products or services, based on several potential benefits. They offer business leaders insight into how their pricing decisions might be received, enabling them to decide which methods of price optimization would work best for their target demographics.
Ideally, your pricing strategies should align with your overall business strategies so that your customers understand your value proposition at the highest and broadest level. Rarely is a single pricing strategy sufficient however - most manufacturers choose to incorporate several as they often have many prices to manage across product lines and families and target audiences.
Pricing Strategy Options
There are many strategies to choose from when it comes to optimizing your pricing. Many traditional ways of pricing, such as value-based pricing and cost-plus pricing, are very well known and have been around for decades. But these aren’t your only options.
Pricing is a critical component of how products are perceived and how customers value them. It can sway customers’ opinions, giving them the impression that a product is of a higher value than they might otherwise have thought.
There are now several other, lesser-known strategies that many manufacturers are using to attract key demographics and expand their market share. These include penetration pricing, dynamic pricing, and price skimming. Below is a list of the variety of options. You will find detailed description of each in
The Definitive Guide to Pricing Strategy: Types, Benefits, and Best Practices on the Vendavo blog.
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Cost-plus pricing. Gain an understanding of the product’s cost structure and add some level of margin to ensure profitability.
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Competitor-based / Market reference pricing. Consider your main competition for comparable products and outdo them on price.
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Value-based pricing. One of the most desired pricing strategies, value-based is how your intended customer perceives the value of your product.
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Simple segmentation. Simple yet thoughtful pricing constructs are deployed by segment, with clear policies on volume, price, incentives, and list price discounts.
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Optimized segmentation. Granular, sophisticated customer segmentation, often with hundreds of customer and product segments, designed and validated using customer attributes.
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Price skimming. Initially set high prices to create buzz and attraction and then gradually reduce the price overtime.
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Economy pricing. Initially set a low price (that is still profitable) for large volumes. The high quantity allows wholesale purchasing at reduced rates and decreases the cost.
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Penetration pricing. Used in highly competitive industries, penetration pricing sets your price low to attract attention and encourage buyers to try a different brand. Prices are raised gradually, over time.
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Dynamic pricing. Price increases or decreases according to demand.
Each of these strategies improve profit margins when they are used well, in the appropriate scenario. But often, organizations will achieve the greatest levels of success when multiple pricing strategies are combined. With a variety of products going to market, it only makes sense some strategies will work better than others in meeting customer expectations and growing the bottom line.
Benefits of Optimized Pricing
Regardless of which strategies you employ, thoughtful, consistent, well-executed pricing strategies help manufacturers position themselves as a high-quality brand that sells reliable products at a fair price. Pricing is a critical component of how products are perceived, and therefore how customers value them. It can be used to sway customers’ opinions, giving them the impression that a product is of a higher value than they might otherwise have thought.
Well-designed strategies can be used to boost customer confidence in products, encouraging them to remain loyal to a chosen brand for prolonged periods. This boosts customer retention and encourages existing customers to increase their average spend with a company once their confidence in the quality of the brand’s products grows.
If you’d like to learn more about how to optimize your pricing with solutions from
Vendavo, the market leader in B2B pricing, selling and rebate solutions,
get in touch with our team.
Mitch Lee is a profit evangelist at
Vendavo, a global provider of B2B price management and commercial excellence solutions. He focuses on providing thought leadership and helping teams develop engagement at all levels, identify hidden opportunities in challenging markets, and deliver value.
