Is Strategic Pricing Dead?
Given the accessibility of information, is it possible to be strategic in your pricing? Or do the ever-shifting sands of your competitors’ prices trap you?
Given the accessibility of pricing information today, is it possible to be strategic in pricing your products and services? Or do the ever-shifting sands of our competitors’ pricing trap us all?
Here’s a quick way to tell whether or not you’re being strategic in your pricing:
- When you create a new offering do you establish one price or a series of prices?
- When you change your prices, is it typically your initiative or a reaction to your competitors’ pricing?
- Do you match your competitors’ pricing?
- Does your product’s/service’s life cycle influence your pricing decisions?
The answers to these questions tell you all you need to know about whether or not you’re using a price strategy or merely reacting to your competitors’ pricing.
One price or series of prices?
If you’re establishing a single price for new offerings, you’re not developing a pricing strategy. Effective price strategies must include a series of prices to reflect:
- Your product’s/service’s life cycle.
- Changing customer tastes.
- Competitor offerings – current and anticipated.
- Value (pricing) by market segment.
- Offerings to companies outside your industry who compete for your market’s dollars.
This is not an all-inclusive list, but it gives you a sense for what’s involved in establishing a pricing strategy. Each of the items on the list indicate why we don’t live in a one price fits all world. Here are some examples to illustrate this point.
Early adopters of innovation willingly pay multiples of what the mass market pays. That’s why it’s important to know what price you’ll charge at each phase of your product’s/service’s life cycle as well as how you’ll know when it’s time to change your price.
Similarly, prices can be dramatically different for different market segments. Why? Because the value to each segment can be dramatically different, as can the willingness of each segment to embrace change (new offerings). Some markets are more progressive than others.
When a competitor comes out with a new offering, especially one that appears to be superior to yours, how do you respond? How does that influence your pricing? More importantly, should it?
Many companies ‘improve’ their offerings only to find their customers are unwilling to pay for the improvement. Do you have a mechanism in place to evaluate the value of a competitor’s improvement? If not, you’re likely to follow them down the rabbit hole or you’ll lower prices when there’s no need to do so.
Hopefully these illustrations demonstrate the importance of having a pricing strategy, one that incorporates a series of prices and price change triggers.
Now, let’s contrast this approach to reactionary pricing.
Regardless of whether or not you’ve promulgated a price-matching program, if you regularly raise or lower your prices to reflect your competitors’ price changes, you’re price matching. There’s nothing strategic about price matching. You have relinquished control to your competitors.
Yes, I’ve heard business leaders’ claims that they need to be competitive, that products eventually become commodities and that buyers are price conscious. Unfortunately the business ‘leaders’ making those claims aren’t defining their terms.
What does it mean to be competitive? When does a product become a commodity? Are buyers really price-conscious? Let’s explore each of these questions in more detail.
What does it mean to be competitive? Offering more for the same price as your competitors are getting, is not being competitive, it’s folly. It confuses your customer! Here’s what they’re thinking – “If your product/service is so much better, than why doesn’t it cost more?”
That’s right. Despite all the claims that customers are price-sensitive, this price/value comparison gets made, if not consciously, then subconsciously. It’s intrinsic to the human psyche. Here’s a situation that many of us have experienced.
You stop at your favorite ice cream shop and order your usual dessert. The clerk says “That’ll be $3.75.” It’s $.25 more than you have been paying.
Do you hesitate, even if for only a few seconds, before completing the purchase? Of course you do. You’re mind did a quick price/value calculation. If this is really your favorite ice cream, you’ll quickly decide you’re worth it and treat yourself despite the higher price. We do this all the time.
Because this thought process occurs subconsciously we don’t realize we’re making these calculations. Nor do our customers.
The moral of the story is to stop listening to the white noise of public opinion and pay attention to what our human nature tells us – to get more, you have to pay more. Then tout your value and price accordingly.
I can’t tell you how often business owners/leaders tell me their offerings have become commodities in the eyes of their buyers. My response is always the same “If that’s really true, if you can’t add any value to that product, why are you still selling it?”
Come on folks, if what you’re offering is so readily available, if it’s of so little value to the customer, if customers view it as a necessary evil instead of something they desire, then why devote time, energy and resources to selling it? Why aren’t you shifting your resources to producing and selling what your customers really want?
Conversely, if you are able to add value to the product, then why don’t your customers see that value? Why aren’t they willing to pay more to get that value?
More often than not it’s because you’ve devoted your marketing dollars to touting your low prices instead of the value you’re adding. Shift the focus of your marketing messages and you’ll shift your customers’ focus as well.
Price conscious customers
I’m not going to belabor the point. The reason customers are price conscious is we’ve trained them to be so. The vast majority of our marketing messages focus our customers’ attention on price instead of the value we provide. We’ve trained them to be price conscious, now it’s time to train them to be value oriented.
Is strategic pricing dead?
Almost, though it needn’t be. We have it within our power to become more strategic in our pricing. The knowledge and tools already exist and are readily available; we simply need to employ them.
The choice is basic – either you take control of one of the greatest drivers of your company’s profitability, your pricing, or you allow your competitors to control it. To me, that’s a no-brainer.
Dale Furtwengler is the author of the internationally acclaimed Pricing for Profit. His company, Furtwengler & Associates, Inc., helps companies get higher prices regardless of what their competitors or the economy are doing. For more pricing/branding/marketing/sales tips visit his website, PricingForProfitBook.com.
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