Select Page

Pricing is about much more than just your sales price minus your cost equaling your profit. Multiple factors impact the right price for a product or service and if you’re not taking them all into consideration, you could be leaving money on the table and selling yourself short.

A pricing strategy can dictate how consumers view your brand and what you have to offer. Pricing too low can mean a perception of less value and too high can mean you lose sales by not pricing properly for your markets.

When consulting with clients on their pricing, our CIOs look at things like customer personas and the value clients are providing through their products and services. Often, we can help them improve profits just by looking at things a little differently and considering some new pricing strategies. 

On average, a 1% increase in price translates to an 8.7% increase in profits. 

Could your prices use a review? Read on to learn pricing strategies that you may want to consider.

Consider These Top Strategies to Optimize Your Prices

A company can be selling a lot of units of an item, but barely getting by. Your pricing can make a big impact on how well your company is doing on the balance sheet. Are your prices optimized for different customer types? Are they reflecting the value of your offerings?

Here are ways to rethink your pricing and maximize your profit opportunities.

Pricing Based on Payback and ROI

If you sell an energy saving gadget that’s paying for itself in 1/3 the time of anything else out there, you have a great competitive advantage in the marketplace. You may also be selling the item for too low a cost. 

For products/services that lend themselves to it, take payback and return on investment into consideration when pricing. You may find that people are quite happy with a payback that’s 1/2 the time of the competitors and would also perceive your product as better quality if your pricing on it was a little higher. 

Differential Pricing

Differential pricing takes into consideration that some customers are willing to pay more for a product than others. For example, if you have a product that’s purchased both by individuals and contractors, most likely contractors will be looking for some type of price break since they generally are repeat buyers.

Instituting tiered pricing for customers that buy higher volumes versus those that purchase once, can help you capture more sales by more closely matching your pricing to the customer.

Some factors that are typically considered in differential pricing are:

  • Quantity ordered
  • Location
  • Payment terms
  • Expedited delivery 
  • Customer type

Bundle Pricing

Often you can help move more products or services while also offering additional convenience to your customers by using bundle pricing. It’s also a way to upsell and get a customer to try something they might not have intended to purchase initially.

An example of this in the service industry would be to create a package for business customers that use your tax services, that includes a monthly bank reconciliation for an additional price that is less than if both those services were purchased separately.

For products, you could bundle items that would be typically used together, like a five gallon of paint with a roller, brush, and drop cloth, then discount the overall bundle so it’s less than buying everything alone. 

Identify Profit Underperformers

Using business data analytics, you can identify which products are performing worse from a profit, not unit count, standpoint. For example, often there are certain products that on the surface might look like they’re performing well, but when business metrics are analyzed you find they take 5-times the amount of customer support staff time than other products, so you end up making much less than you thought in overall profit.

Once profit underperformers are identified, you can then either choose to raise the price to make up for the additional customer support time needed or reduce your marketing budget for that particular item and instead focus on those that are performing better.

Understand Customer Price Sensitivity

If you dropped the price on a high-end item a few dollars, your margin would be slimmer, but you might end up selling more units overall. It’s important to determine your customers’ price sensitivity so you can price with that in mind.

To gauge a price sensitivity, analyze things like:

  • Which products are being left in abandoned carts the most on your website?
  • Which products do customers tell your salespeople are just too much?
  • Which products do customers use your coupons on the most?

Before you go slashing prices on an item, first ask yourself if the value statement is the best it can be. But if that’s not the reason, then a price decrease could help you move more of that item.

Adding High and Low Options

A common psychological pricing tactic is to offer a similar item for a higher and lower price than your main product. Often people will choose the option in the middle when presented with three different pricing options.

For example, if you sold security cameras, have a “Basic” that’s the lowest price, an “Advanced” that costs a little more, and a “Premium” that is the most expensive. Studies show that you’ll end up selling more of that Advanced model just by putting it beside the other two options than you would it if were sold alone.

Does Your IT Support Good Pricing Decisions?  

At Genuine Technology Group we are business consultants with an IT twist. We know how to structure your technology to give you the support you need to grow your business and make informed decisions on pricing and more.

Contact us today to find out how good data can help you make better decisions. Just call 971-288-0880 or reach us online.