5 Signs You're Smarter at Pricing Than You Think

Posted by Moira McCormick on September 6, 2016
Moira McCormick
Man.jpgDo you have any nagging doubts that you might not be getting quite the optimum price for your products or services?  Are you confident you always utilise your skills, expertise and know-how to squeeze out those extra profits for your business?

Fear not because you may be smarter than you think when it comes to finding the most profitable price.  How so?  Well, are any (or all) of the following applicable to you? They certainly should be.


1. You're always looking to learn more about pricing

Whether you're taking courses, reading books, articles and blogs or attending pricing conferences, it is important to continually challenge your perceptions of pricing and learn about new ways to optimise and improve your price management.


2. YOu're disciplined about prices

Price setting and price getting require discipline - not luck. Pricing decisions must be embedded in robust structures and processes, which you've been instrumental in setting up. 

All these decisions must be conveyed clearly to your sales team, encouraging them to stick to the rules and not be tempted to discount unnecessarily.


3. You're ALWAYS LOOKING TO OPtimise prices

Today's consumers are more price-sensitive and cost-savvy than ever before. Price a product too high and you may limit your market. Price too low and not only will you leave money on the table, you may damage your brand or start a competitive price war.

Get the price right (and without alienating customers) and you're on the way to a more profitable business.


4. You're customer centric

You need to understand your customers, their traits, likes, dislikes, drivers and willingness to pay. Walk in your customers' shoes regularly to understand how it feels, take on board feedback from your marketing department and adapt product prices accordingly.

Be aware of just who your target customer is and how much money that customer generally has to spend.


5. You implement the pricing strategies best suited to your industry

Whatever market you're in, the right price can mean a 'done deal' while overpricing can scare customers away.  There are many different pricing strategies designed to reel in customers - some of the best are mentioned here. 

If you are smart about pricing you'll be using one or more of these:


Dynamic Pricing

Also known as time-based pricing, this is a form of price discrimination in which you change the price of a product or service depending on a specific set of factors.

Dynamic pricing allows you to maximize profits because it is better able to assign prices that take into account shifting levels of demand and willingness to pay.


Psychological Pricing

Your psychological pricing strategy should aim to strike a thrifty note with a bargain or stir up feelings of prestige with a higher-priced item. 

You could try one of the following:

  • Use an odd pricing strategy and price your products just below the whole pound amount. As an example, charge £4.99 for a product instead of £5.00. Customers naturally read prices from left to right and will associate the price closer to £4 than £5. Similar strategies can also be used for larger amounts, to convey better value
  • By pricing at £29.99 instead of £30, your target audience includes people looking to make a purchase 'below' £30. At the £30 price point, someone comparing options could 'reject' your product. This also applies in larger increments, such as a customer looking to purchase a car under £5,000, and seeing one at £4,999.99.
  • Encourage impulse buys. As an example, the items for sale as you approach a checkout at a supermarket or superstore are generally tempting, attractive, seasonal – and psychologically priced.
  • Try "bundling" to reduce purchasing pain. Throw in more products and offer a slight discount on the unit price in return. Your customer will feel they've bagged a bargain.
  • Try a 'flash sale' to convey exclusivity in addition to urgency.
  • Have a ceiling price – say it's £100. Your customers will feel more comfortable knowing about the upper limit and realise that they are not going to have a heart attack glancing at the price tag!
  • Apply temporary discounts to attract customers who feel they should buy now to take advantage of the discount because next week might be too late.
  • Implement a price lining strategy involving distinct lines of products, each in a distinct price range, such as budget, mid-range and high-end. Adding enhancements on your most expensive lines doesn't typically cost much but allows you to increase the price significantly – and appeals psychologically to customers who aspire to purchasing a high-end product. Conversely, the budget and mid-range lines appeal to your more price sensitive customers.
  • Your customers will feel they've got a good deal on a product they normally buy anyway if you offer 'buy one, get one free', colloquially known as BOGOF? Or, it might tempt them to try a newer, normally more expensive item.
  • Without making significant changes to your product you can rebrand and change customer perception. This can make your product suddenly seem like a great bargain or elevate your luxury product to the top of the available options.
  • Appeal to the needs and aspirations of your customers. Determine who you are trying to reach and how your target audience will respond when setting your prices.
  • Never forget the competition because straying too far from similar products when implementing prices can make you less competitive.

When effectively applied, psychological pricing should contribute to increased sales volume – and a decided improvement to your bottom line.


Value-based Pricing

  • Determines how much money or value your product or service will generate for your customer, which could originate from factors such as increased efficiency, time saving, happiness or stability.
  • Provides real "willingness to pay" data that points you towards a profit generating price within your pricing strategy.
  • Allows you to implement price segmentation so you can capture a greater portion of the market
  • It helps you develop higher quality products by revealing what it is your customers really want.

Value-based pricing is the most recommended pricing technique by consultants and academics.


Product Oriented Pricing

Certain product relationships allow you to change your pricing strategy. Adding optional extras or selling products in a bundle, can hide the true cost from the consumer.

When your product has a relevant partner such as a razor and blades, you can price the initial purchase (razor) low and recoup the costs with the secondary purchase (blades).


Penetration Pricing

Penetration pricing sets a relatively low initial introductory price, lower than the intended future price, in order to attract new customers. This should encourage word-of-mouth recommendation of the product because of the attractive pricing.

In the short term, penetration pricing is likely to result in lower profits than would be the case if prices were set higher -  but with the hope of significant profitability benefits and market share in the future.

This strategy is often used to support the launch of a new product, and works best when a product enters a market with relatively little product differentiation and where demand is price elastic – so a lower price than rival products is a competitive weapon.

You'll realise that implementing this pricing strategy does have its drawbacks:

  • It can create an expectation of permanently low prices
  • It may simply attract customers who are looking for a bargain, rather than customers who will become loyal to your business and brand
  • It might result in retaliation from established competitors



Good price management can promote your business to the next level. If you are pricing smart then you'll keep an eye on your customer's maximum willingness to pay and the differential value to those customers of your company's product or service.

You'll implement good systems to monitor and communicate prices to all your sales team, and be willing to implement a pricing strategy that best suits the needs of your customer, your business and the market. You will also have the self-confidence to walk away from unprofitable deals.


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http://webupon.com/money-making/six-best-pricing-strategies-to-increase-sales/ by James Henry Abrina

A. Frye and D. Campbell, “Buffett Says Pricing Power More Important than Good Management,” February 18, 2011, http://bloomberg.com

K. Mitchell, “The Current State of Pricing Practice in U.S. Firms,” (opening speech Professional Pricing Society Annual Spring Conference, Chicago, May 3-6, 2011).

A. Hinterhuber, “Towards Value-Based Pricing: An Integrative Framework for Decision Making,” Industrial Marketing Management 33, no. 8 (2004): 765-778.


Harvard Business Review on Pricing 2008




Topics: Pricing, Dynamic Pricing, Smart Pricing, Psychological Pricing, Value-based Pricing, Product Oriented Pricing, Penetration Pricing

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