Pricing Drives Sales

Posted by Moira McCormick on June 7, 2017
Moira McCormick

Pricing Drives Sales

The one thing that is going to stop your customer's in their tracks is price, whether that price is ridiculously low or flying high amongst the clouds.  Or, on the other hand, it could be that your prices seem fair to them, offering value and benefits not seen elsewhere, i.e. your prices are just right.

Because pricing is the key determinant in your customers' decision whether to buy or not you better get this element of your marketing strategy right – your survival could depend upon their decision, either now or in the future.


What is Pricing-as-a-Service (PraaS)?


So, as it says in the title, pricing drives sales.  It really is one of the strongest levers within your marketing toolkit to encourage shoppers to step inside your store.  Whether you are offering individual low prices, lower prices than your competitors or a guarantee that your basket will be cheaper than elsewhere, the emphasis here is always on price. 

Indeed, if what you are advertising is value this too is a subliminal message to your shoppers that they will be getting more for their money if they shop with you than elsewhere.

Shoppers have become increasingly savvy when it comes to prices and are able to compare products from various manufacturers and sources within a few seconds – and price is undoubtedly the number one component of that judgement. 

They are usually making their decisions not just on what they consider a fair price but fair value too – the perceived benefits to buying with you rather than your competitor.


"Consumers rarely respond to the lower prices enough to offset lower margins."  Kurt Jetta


The pleasure (and pain) of buying

You don't want to leave your customers feeling like they've been ripped off – they certainly will never return.  Nor do you want to give away all your profits by always being the cheapest – you'll soon find out that you have to sell a whole lot more just to break even.

Recent research has revealed that shoppers can experience a good emotion when buying if you are offering benefits with your product or service.  The pain comes at the price so it's essential that you are offering value and benefits enough to mean that shoppers are not just fixated on price. 

If your marketing campaigns revolve entirely around price in order to reduce the pain this is a short-sighted strategy in a competitive market because to be blunt, just how low can you go?


Case Study

A customer went into a business to buy a particular lawn-mower.  The salesperson checked, confirmed that they had the item in stock and that it was £250.00.  The customer countered that this was more expensive than other potential suppliers and the salesperson negotiated to discount the price to £220.

A director of the business witnessed this exchange and asked if he could have a few moments with the customer to ask a few questions.  Did he know, for example, that the business offered a trade account and therefore 30 days' credit?  The customer was not interested in this offer because he always paid cash on the day.

Did the customer know that the business offered same-day delivery of items if ordered by lunchtime?  He did like this but said in this case he needed the item that afternoon.

The final question was the most critical:

Did the customer appreciate that the company held £2m of stock so that customers could be confident that whatever they wanted? It was almost certainly in-stock. 

Yes, he explained, this was very valuable to him as he had already visited five other suppliers and been unable to source the product he needed elsewhere!

The moral of this story is that would the salesperson have been so ready to give the £30.00 discount had he known he was number six on the list of people to try, and that the only reason the customer had used them was that they were the only ones that had the item in stock?  Probably not!


Set prices to capture value

Your price sends a strong message to your market and it needs to be consistent with the value you’re delivering. For example, if your value proposition is operational efficiency, then your price needs to be extremely competitive. If your value proposition is product leadership a low price sends the wrong message. 

Customers will evaluate a product and its next best alternative(s) and then ask themselves, “Are the extras worth it?" or is the discounted product as good as a "high end" one. They will ultimately choose the product that provides the best deal (price vs. attributes).

A value-based pricing strategy enables companies to:

  • Deploy this strategy across a broader range of customers and markets
  • Establish value-added supplier relationships
  • Extend the lifecycle of existing products
  • Capture maximum value of new product offerings
  • Identify high-value customer segments


The short-term and long-term

We've survived a gut-wrenching recession and are just about coming out the other side.  Competing on price will mean only short-term gains whereas perceived value is a long-term gain and means retaining customers for the future. 

These customers are much more worthy of your attention than the flighty, "here today gone tomorrow" type of customer.  If a customer has ventured into your store for the value you offer in a range of products, then they may just be tempted to part with their cash for another item that is attractively displayed and not at all what they came in to buy – that's a win-win situation for you!


Are your employees all on the same page?

Market conditions can often be demanding and that is why you need to have all your key people right behind your pricing decisions, even if they are looking at the end result from different perspectives. 

Your marketing department (through research) may well have assessed the value that your customers see in your product or service and what they are willing to pay.  The key aim of your sales team may be to win the most deals they can possibly get almost at any price. 

If you recall the case study above you would be wise to get your salespeople to discuss all the beneficial elements of a deal before offering a discount.  Your finance department will understand that pricing is the only element that directly affects revenues and thus profits.

If pricing drives sales then how much better it is to make sure that they all fully understand the reasons behind the pricing decisions you have made? 

If the various departments do not have consistency in their actions and strategies then you are left with reactive and often chaotic pricing actions implemented off the cuff just to survive in the short term. 


Not all your customers are the same

Pricing is the one area of business where companies behave as if all their customers are identical - by setting one price for each product.

The key to developing a comprehensive pricing strategy involves embracing (and profiting from) the fact that customers’ pricing needs differ - and setting prices accordingly.

One of the easiest ways to enhance profits and better serve customers is to offer good, better, and best versions. These options allow customers to choose how much to pay for a product – and what will best suit their requirements.

For any product, some customers are willing to pay more than others. Differential pricing allows for different prices based on the type of customer, quantity ordered, delivery time, payment terms, location, etc.


Pricing Drives Sales

Remember, pricing drives sales and it's all about focusing on your product's features and benefits – offering your customers value alongside a fair price. 




Related Posts

10 Pricing Techniques to Get and Keep a Buyer's Attention

10 Steps to Selling Value

9 Factors that Affect a Customer's Willingness to Pay



The Strategy and Tactics of Pricing, Tom Nagle and John Hogan, 2016
Get the Price Right by Sahaj Kothari 2015
Pricing for Profit by Peter Hill 2013

Topics: Pricing, Sales

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