A company can employ a wide range of pricing strategies if it wants to maximize its revenues. However, to arrive at the best pricing strategy for an enterprise, top executives should first identify the organization’s pricing position, price segment, price capability and their internal competitive pricing response strategy. Identifying these three important elements will help executives determine the pricing strategy that is right for the company. Once these key pricing elements have been determined, the group can move on to the next step of developing a unique pricing strategy to fit the company.
A major concern for any enterprise considering bundling its products, services or even its revenue channels, is that the strategy may not work better in the current economy. There are several factors that can affect the strength or weakness of the strategy. The factors include pricing, profitability, market share, cost reduction and customer’s point of view. For example, if the company expects to sell more products in a particular price segment in the current economic environment, it should charge that price more aggressively to increase its revenues.
Pricing Metrics The ability of a pricing strategy to work better in the current environment is dependent on how accurately it classifies customer profiles. Identifying the right metrics to use will require input from each unit in terms of preferences, characteristics and the organization’s behavior in the market. An ideal metric would be one that can capture multiple dimensions of the product or services offered by the enterprise in a single sheet of data. However, the current reality is that there is a plethora of different customer profile metrics available. executives should take into account customer preferences and LCCS dimension preferences when determining which metrics to use.
Measuring Growth and Development Pricing Strategies that rely on historical data may not reflect the current reality on the ground. Growth and development should occur over time. Pricing reflects what customers are willing to pay for a given level of output. If the end-user is willing to pay higher price points for the same product or services, then the end-user is no longer a potential customer. Changes in the availability of particular inputs like labor and machinery and changes in the preferences of the customers, for example, regarding brands and features, can also affect pricing. Changes in profitability and the economy can also have significant impact on pricing.
Identifying Competitive Threats Companies should consider competitors and how they position themselves in the market. The existence and size of competitors, as reflected in sales and operating data, can provide a company with a competitive threat assessment. A pricing strategy that effectively measures competitor activities and responds appropriately to those activities can serve as an indicator of the company’s strength in the industry.
Evaluating Business Models One of the most important steps in developing a successful pricing strategy is evaluating the existing business models. Evaluating a company’s existing business model will allow a company to understand how its competitors operate and discover opportunities to improve its overall performance. A strategic pricing process should identify key components from the customer’s business model and the competitors’ business models to come up with a unique pricing strategy. This strategy may not always yield the best set of pricing options, but it can help a company make important decisions about how to price its products and services.