How to Avoid Making Pricing Errors

Posted by Moira McCormick on October 11, 2016
Moira McCormick



Do you overlook the importance of pricing? Too few companies proactively manage pricing and their profits suffer as a consequence. Even with the newfound efficiency acquired from using pricing software, there’s one thing your sales team still needs to catch buyers: a good pricing strategy.

Here are a few major pricing strategy errors that could ruin your sales - and what you should do instead:

1. How often do you update your prices?

When did you last update your prices – a year or five years ago? Oh dear! I suppose you think that if things are going along relatively smoothly why should you rock the boat?

However, have you taken into account rising costs and inflation? At the very minimum you should be re-visiting your prices annually. There are many reasons for you to review/increase your prices on a more regular basis but perhaps the most persuasive reason is that just a 1% increase can have a huge impact on your bottom line. This could, on average, increase your company's net profits by 12%. You’ll also be surprised at how little it bothers most customers/clients.


2. You believe One Price Fits All

Do you operate a singular, narrow pricing policy for each of your products? If so you could be leaving money on the table.


“The mistake is to have only one price for your product.” -  Nathan Barry


In a recent study in the States, pricing experts ran a test on selling beer. They priced one beer at $1.80 and one at $2.50. 80% opted for the more expensive beer. In this case, the lower priced product only served to emphasise and highlight the quality of the more expensive beer.

To further emphasise the impact of tiered pricing, the researchers ran a second test. This time they introduced a bargain price beer at $1.60. In this test, 80% of customers opted for the $1.80 beer (the middle one). Obviously, this was disastrous for the profit margins.

Finally, the researchers removed the bargain beer and added a ‘super premium’ option at $3.40. In this test, 85% of customers opted for the $2.50 premium option. So, by simply offering more price options, this vendor was making an extra $0.70 (38%) per beer!


3. Is lowest price always best?

If your product or service is priced lower than all your competitors, you’ll get more business, right? Greater volume means you’ll make more money? Not always my friend.

This strategy only works if you’re selling exactly the same product as your competitors – and I mean exactly the same.

Today’s clued-up buyers tend to be sceptical, and the cheaper something is, they become suspicious. Affordability is obviously important but buyers still want value. Instead of comparing your significantly lower prices to the competition, say why your prices are lower. What does your brand do differently that allows you to provide great quality for less?


4. Are you pricing too high?

Setting prices too high without consideration for target customers or what they value is a recipe for disaster.

When companies price their products too high, they can make attractive profits on each transaction. However, consumers are keenly aware of the value they get for their money, and once they conclude products are overpriced, they will stop buying. Consumers can have long memories and will be reluctant to trust your company again.


5. Not selling value

If you present products and services in the right light you can increase conversions. When dealing with pricier products, sell the value rather than just the product itself. Focus on the long-term benefits to the customer and demonstrate how the product or service can create a favourable change in your buyer’s lifestyle.


6. You don't benchmark your business

Business owners often tend to think of what a product should be worth, not what it is worth. It's important to study the whole market and even more vital is to look at what the product sells for in your immediate area.

Observe your competitors, and think critically about how your model compares to theirs. What volume of business do your competitors do? Is there a reason their product sells for what it does? This is called benchmarking, and a remarkable number of small businesses fail to utilise this strategy.


7. Poor presentation

You can have everything right about your pricing, but if you don’t present it in an appealing way, buyers aren’t going to be very impressed. Help build brand consistency by ensuring all pricing information you send to prospects look clean, professional, and matches your organisation’s brand. You can even personalise the content.

The way you communicate pricing could completely lose you a deal. Don't over-complicate for no reason. When in doubt, keep it simple.


8. Not effectively managing day-to-day pricing decisions

This is a dynamic problem that relates to negotiations with individual customers. Day-to-day pricing decisions are often flawed for one or more of the following reasons:

  • Inadequate value proposition

  • Lack of pricing rules

  • No accountability

  • Insufficient or flawed data

  • Flawed incentives

Companies must establish the appropriate processes and polices to effectively manage day-to-day pricing decisions.

Pricing is an incredibly powerful lever that is typically underutilised. The most common pricing errors are either targeting the wrong customers or simply pricing too low. To correct these mistakes, take the following actions:

  • Utilise a value-based pricing methodology to set the right initial price

  • Establish (and enforce) effective policies for managing day-to-day pricing decisions

  • Eliminate disconnects between a company’s business strategy and its product pricing

  • Align and reinforce your brand image to ensure consistent signals are sent to customers

If you can revise your pricing strategy by enacting the above then you’ll be well on your way to unlocking the untapped profit potential in your business. All things being equal, a good product and accurate pricing should mean accumulation of a healthy profit.


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How to Minimise Pricing Errors

Gregson, Andrew. Pricing Strategies for Small Business 2008

The Strategy and Tactics of Pricing, Thomas Nagle and Reed Holden 2016

Pricing on Purpose: creating and capturing value by Ronald J Baker.

Implementing Value Pricing: A Radical Business Model for Professional Firms by Ronald J. Baker.

Topics: Pricing Errors

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