Pricing is always a crucial element in business strategy, but in a turbulent economy, it becomes much more crucial. Globally, inflation is growing quickly as a result of expanding consumer demand, broken supply chains, and cheap monetary policy. The US Consumer Price Index increased by 9.1% between June 2021 and June 2022, according to the most recent statistics from the US Bureau of Labor Statistics, the largest annual gain in the previous 40 years.
Given the uncertainty surrounding the duration of global inflation, it is particularly challenging to set prices for goods competitively now without reducing profits. The moment is now if there was ever a time to carefully consider your pricing approach.
Management teams need to continuously modify their models to better reflect changing macroeconomic conditions and customer preferences in order to develop and sustain a successful pricing strategy.
To assist your team in achieving this, we’ll provide four pricing strategy recommendations in this post. They may seem counterintuitive, but they are backed by independent study and may be useful for any business trying to create and maintain a practical and adaptable pricing plan.
1. Being the cheapest isn’t always the best option
You might assume that the greatest method to outperform your rivals is to lower their pricing. But pricing isn’t always that straightforward.
According to research done in 2021 by the Boston Consulting Group’s Center for Consumer Insights, 70% to 90% of the 41,000 people polled consider themselves to be “value sensitive” customers, depending on the purchases they were questioned about (defined as always carefully considering price before spending money). Only a tiny percentage of people polled had really bought the lowest-priced item when asked regarding their latest purchase in a wide variety of consumer products and services categories – in most cases, fewer than 15%.
The main lesson to be learned from this is that each consumer’s perception of a product’s worth is unique. Customers frequently agree to spend a little bit extra for a product that they believe to be of greater quality. For many consumers, a product’s price can be used to determine its quality or to assign it a specific status.
When creating a pricing strategy, context and conditions are essential elements to take into account.
2. Don’t believe that promotions = profits
Promotions may be a powerful method to increase sales when done well. However, businesses may quickly become overly dependent on promotions, which eventually erodes value. Read more about other signs your pricing strategy isn’t working.
Bain discovered that the majority of the best-performing firms in terms of market share gain shared a few strategies after polling more than 1,000 top consumer brands about their pricing strategies in 2019. One of these was promptly identifying and eliminating “bad promotions,” which are defined as those that impact profitability, harm the brand, or fail to significantly increase sales. Another was using data to continuously fine-tune their campaigns.
These results support the idea that promotions should be conducted scientifically rather than as a fast technique to increase sales.
3. Not only airlines use dynamic pricing
You might believe that dynamic pricing is just used in the travel and e-commerce industries, but it’s spreading (entertainment industry, taxi services, etc.)
Consulting firms and enterprise software companies typically use proposal-based pricing, a type of value-based pricing in which the price quotation for delivering a specific good or service is customized to a customer’s requirements and their estimation of its worth.
Retail businesses with physical locations can also benefit from dynamic pricing strategies. For instance, a buyer could object to price adjustments for essential products but not as much for trendy or one-off purchases.
Regardless of the scale and scope of your business, by regularly and systematically reexamining the price issue, you may manage it more effectively and perhaps provide considerable profit gains.
4. Information is the most valuable thing you can gain from a price change
From marketing initiatives to public policy choices, many procedures are now “data-driven” or “evidence-based,” and your pricing plan surely is too, but certainly not to the level that it should be. The more data you can get about your market, rivals, and consumers and utilize it to constantly update and enhance your tactics, the more successful your pricing will be.
Concentrate your efforts on clearing up datasets that can most significantly affect the most lucrative items or segments for your organization. Before you use the data you already have as the foundation for pricing changes, try using an 80/20 approach to cleaning it up.
Watching your customers’ reactions to price adjustments in a deliberate and organized manner will provide you with the data you need to improve your approach and successfully optimize revenue and retention.
In order to sustain profitability during uncertain economic times, all firms must examine their prices more carefully. Setting prices too low or abusing discounts and promotions can change consumer views and behavior unfavorably, while arbitrarily boosting prices might drive away consumers and hurt sales. The most prosperous companies regularly review their pricing tactics and cautiously experiment with price modifications supported by reliable data.
About the Author
Vital Shpakouski is a Philologist with higher education, professional translator, former volunteer and teacher, entrepreneur, and salesperson with 13 years of experience. Now I’m a copywriter in Internet marketing, writing about everything that helps businesses grow and develop. In my free time, I create music and songs that no one hears and take photos and videos that no one sees.