The fastest and most effective way for a company to drive profits is to get its pricing right. The right price can boost profits far quicker than increasing sales volume; the wrong price can shrink profits just as quickly.
It can be a natural instinct to shy away from initiatives to improve pricing for fear of
Review Your Pricing Strategy
Price is the single most important factor in a decision to purchase a product or service. A low price can represent a “bargain” or low quality in the buyer’s mind, a high price can signify quality or exclusivity.
Before implementing any pricing strategy, know how your customers feel about your product so that a change in price encourages the market behaviour you want. Always consider your prices “temporary” and adjust them to meet current market and competitive circumstances.
Raise or Lower Prices
The prices of products constantly change, so you should not be reluctant to adjust your prices to meet your objectives or the market situation. An immediate price increase will bring additional revenues and profits to your company if the price increase doesn’t negatively impact sales.
A price reduction will stimulate more sales and take market share away from other suppliers. Knowing how your products compare with similar products from the buyers’ viewpoint, as well as the prices of competitive products, will allow you to best position your prices in the marketplace.
Changing prices may “shake things up,” so you should be particularly sensitive to the reaction of your customers and prospects as the new prices take effect. If the reaction is not positive, you can make further adjustments, including a return to the old prices.
You may also consider regularly raising your prices. Consumers rarely react to slight price increases and often overlook them. While a small increase in price may not seem significant when compared to the full price, the impact of the increase
Invest in Pricing Software
Pricing solution software will accurately point you towards your pricing 'sweet spot'. Some of the benefits of using pricing software to drive profits are:
- Allows for better pricing decisions
- Enables real-time pricing
- Saves you time and money
- Allows for price optimisation
- Ensures rule conflicts are handled automatically
- Conduct a full audit history
- Facilitates a move from cost-plus pricing
- Provides regular updates on your competitors
- Focuses on key pricing opportunities to increase deal sizes
Pricing software gives you greater control over your prices and allows you a distinct competitive advantage in the marketplace.
Offer Special Discounts
Discounts, properly marketed, create a special buying opportunity in consumers’ minds, often spurring them to take action. The discounts can be applied to limited products, such as a single manufacturer’s brand, a limited category like school supplies, or all products in a store-wide sale.
In fact, you can create a sale environment for almost any reason:
- Quantity Discount: When two or more of the same product are purchased at the same time
- Tie-In Discount (“bundling”): When two or more different products are purchased at the same time
- Seasonal Discount: When products are bought within a specific time-frame
- Conditional Discount: When the products purchased are used or reconditioned
- Stripped Discount: When the products purchased are “stripped” of one or more features
Participate in Coupon Programs
Distributed through newspapers and magazines, coupons have long been an effective way to publicise products and increase sales – and thereby drive profits.The Internet introduced electronic coupons and reduced the cost of distribution even further.
Daily deal websites such as Groupon aggressively seek companies willing to offer their products at a discount in return for exposure to their large markets of coupon users. Local coupon aggregators combine the offers of different companies into books, which are then sold or given away to potential buyers. Research the market and find an
Add, reduce, or eliminate shipping and handling charges
In lieu of raising the price of a product, consider adding a shipping and handling charge. The net effect on profits is the same while avoiding a buyer backlash to a price increase. If you currently charge for shipping and handling, consider reducing or eliminating the charge for a specific time frame in order to stimulate sales.
Increase Sales by Expanding Your Market
Sales are the single most important activity in which a company can engage. Without sales, there is no future for a business.
If you want to boost your sales, the following strategies to raise profits are effective in most situations. While each of the strategies can be implemented alone, you can implement several of them simultaneously for greater impact on revenues:
- Augment your existing client base with new products, new geographic territories, and additional sales resources
- Add complementary services to existing products
- Review the products of your competitors for ideas. If a
competitor,has an “extra” that appeals to customers, copy it.
- Enter into
co-operativesales agreements. Examples include computer hardware companies selling software, pet food distributors offering proprietary vitamins and pet accessories.
- "Bundle" products. If you sell products that naturally go together, or are used for the same task or at the same times, consider selling them as a package.
Update Your Website and Sales Literature
The importance of sales materials – brochures, presentations, product data sheets, pictures and websites - is often overlooked by business owners, even though the only purpose of these materials is to make the sales effort easier and more effective.
As a result, the information presented to potential buyers becomes out-of-date, inaccurate, and misleading.
Your sales material, including your website, is a reflection of your company. Vibrant, bright-coloured literature complete with drawings and pictures draws attention and generates interest; dull, boring materials are typically "clicked away" without a second thought.
Review your sales materials, item by item, to see whether they convey the image and message you want to present to your customers:
- Do they include all of your products and their latest innovations?
- Do they adequately portray the advantages of your products by linking features to benefits?
- Do they convey a sense of urgency with easy instructions for purchase?
If your brochures, presentations, product data sheets, pictures, or website don’t simply and clearly present information which will spur your prospects to take action, it’s time to redesign them.
Start Producing Profits
Pricing is often an underutilised strategy but it always creates fertile ground for new profits. If you ignore the importance of getting your pricing strategy right it could lead to you sinking without trace sooner rather than later.
Search for new products to sell, new geographic regions to target and enter into
The beauty of focusing on the strategies mentioned here is that many of the concepts are straightforward to implement and could start producing profits almost immediately.
The Strategy and Tactics of Pricing by Tom Nagle and John Hogan, 2016
Pricing Strategy: Tactics and Strategies for Pricing with Confidence by Warren D. Hamilton, 2014
Pricing with Confidence: 10 Ways to Stop Leaving Money on the Table by Reed K. Holden and Mark Burton, 2014
Pricing for Profit: How to Develop a Powerful Pricing Strategy for Your Business by Peter Hill, 2013
Harvard Business Review on Pricing, 2008