Why is Pricing Strategy Critical for Business Growth?
Pricing strategy can be illustrated as the collective processes and methodologies that organizations or businesses harness to modulate the cost associated with a product/service. Any business must have a significant growth margin to continue, which primarily includes production, inventory management, supply chain, logistics, etc. (subject to the type of business model). Ancillary aspects of a business model could consist of marketing, advertising, etc. However, the bottom line is to have a sturdy, practical, and effective pricing strategy.
Pricing strategy for the growth of an organization or a business, at large, is one of the most vital instruments that fosters its sustainable development. Improvident pricing strategy lays siege to the long-term reputation of the business considering the emotions associated with the product or service the business caters to. Most essentially, faltering pricing can sometimes debacle the pace of organizations just after initial sprints on the ground of an unpragmatic base and heedless impulses. Thus, pricing strategy is indisputably a hugely significant factor that drives the success of any business. After all, it all boils down to revenues and profit margin in the end.
Merits of an Effective Pricing Strategy
As much as a substantial profit chunk could be the most incentivizing factor of a robust pricing strategy, to have the business sail for a long time is another crucial ambition of business owners. Hence, a good price evaluation of a product could get it an extra feather of invincibility against all odds and win over the competition of a bearish trend.
1.) Invokes Value in Customers
Effectively strategizing the prices for a product works in the direction of invoking a sense of value in customers' minds. Considering that a product XYZ is the value for money obviously raises the sale and, thus, the revenue of an organization.
2.) Significant Profit Cut-out
Reasonable pricing of a product takes into account the capital that got into its making, from its production to transportation and packaging. Therefore, considering the inputs, an organization that bases the prices judiciously effectively raises the gain margin.
3.) Loyalty and Long-Time Trust
Given that the product stands tall to the expectation made from it, good pricing tends to ignite warmth in customers who associate themselves with the product on 'nativity' grounds. Implanting trust through pricing is the most crucial part of paving the way for loyal customers to get back recurrently. 'A valuable product with viable prices magnets valued customers.'
Factors to Consider While Building Pricing Model
The most important part of getting going with price strategizing begins with the elements and facets to consider. After noting down all the possible downturns and propellers, it gets immensely easy to chalk down the strategy.
1.) Prices Shouldn't be Placed Too High
Prices shouldn't ever be placed too high to glean quick-deal profits. It eventually pushes the putative aspect of the product down the swamp. Nobody would want to buy a product with exceptionally rocketing prices. Hence, a thorough analysis of the worth of the product should be made before putting the costs on a raging and eventually failing note.
2.) Prices Shouldn't be Made Unbelievingly Lower
As much as the raging prices cause trouble in getting the sales done, unreasonably lower prices too can scar the jar. Lower prices often subliminally shout for the poor grade of the product. A customer enticed to a product would not be too convinced upon finding out the low-shot prices due to doubt placement. It would break the principal bar in the first go, which is of fine quality. Hence, prices should not be fatally undervalued to attract customers.
3.) Competitor Analysis While Devising Pricing Strategy
For a new business or a new business owner with relation to a product or service, it could be challenging to decide on the price range to put. Quite often, the pricing could be set up on a scale that would not be healthy for the product. Hence, referencing and analyzing the competitors could be the saving grace in this case. Thoroughly evaluating the pricing of the same product line of the market contenders can be a great way to anticipate the strategy to start with.
4.) Knowing the Target Group
Knowing the demographics, behavioral aspects, and buying patterns of the target group could be a pivotal key to driving sales for a business. Generalizing and assuming won't help in modelling the prices for a product. Therefore, analyzing the target group could give a massive boost to sales.
For the bougie market group, setting the prices higher could actually work as the focus group, in this case, are splendorous households that can afford the higher prices. In such a situation, the factor that works is the consumers' prestige. For example, Apple products are expensive, yet they have a strong market owing to the esteem association in society. Similarly, considering the target group helps a lot for modest and daily-use products.
5.) Skimming and Penetrating Dynamic Pricing Strategy
Depending upon the age of the business, skimming and penetrating pricing strategy could work wonders. Keeping with the dynamism of the market and setting the price accordingly helps balloon sales.
While setting the prices higher during the early phase of the market hold can get businesses maximum revenues by people willing to buy. The process is called skimming, and it focuses on qualitative customers. On the other hand, setting the price pitch lower to get the quantifying coverage after being in the market for a while is called penetrating. The technique focuses on quantity to get to as many users as possible.
Pricing strategies could sometimes seem challenging, especially in a volatile and floundering market scenario. Hence, modulating the prices could be a bit difficult. However, experts in Procurement Resource suggest that the basis of any business' pricing should be the investment in production, supply chain, and logistics. Therefore, instead of wild guessing taking the help of an expert pricing strategist, as in Procurement Resource, can lay a strong foundation in ascertaining the prices to ensure the maximum benefits.
Senior Content Writer at Procurement Resource
Prakhar Panchbhaiya is an accomplished content writer and market research analyst. With over 4 years of experience in content creation and market analysis encompassing many industries, including pharmaceuticals, nutraceuticals, biochemistry, healthcare, ed-tech, and Food & Agriculture, he has been creating quality content for multiple sectors. He is a Biochemistry major with sturdy backing in a PG diploma in digital marketing, helping in the exhaustive content creation based on extensive research and competitive marketing.