Pricing is king because nothing else will define your business and products more – or, have such a vital impact on the success of your business. Your prices influence how many customers actually make a purchase, how your products are perceived, the types of customers you attract and the amount you collect in sales revenue.
Every pricing decision you make should offer a win-win outcome where your customers get good value for their money and your business makes a healthy profit.
It's an undoubted fact that for the majority of shoppers, the most important element they use to determine where to shop is price. Now is the time (more than ever) for your business to adopt AI and data-science based pricing that will provide your customers with the prices they feel are fair, whilst allowing your business to grow and increase profits. Well, I hear you say, we would say that wouldn't we!!
But the facts speak for themselves. You cannot afford to get pricing wrong because a 1% improvement in price optimisation has been shown to result in an average boost of 11.1% in profits. Not bad, eh?!! We'd obviously like you to choose BlackCurve's pricing software to assist with getting you the right price, at the right time because we firmly believe that this will be the most vital element you can implement to make your pricing great. We've also added here some other important elements we feel you need to address to make your pricing unsurpassed now.
Use A.I-based Pricing
Nobody is doubting the challenges facing retailers today but A.I-based, data science driven optimisation technology will ensure you satisfy the needs of your shoppers price-wise whilst ensuring that you remain competitive and make a profit. Technology is critical to adding both speed and accuracy to your pricing decisions - and getting that optimum price. A recent Forrester Consulting study showed that almost 60% of respondents indicated that if an item was available but they considered it to be priced too high, they would either wait till the price dropped, not make the purchase at all, or, buy from another retailer.
This same research also demonstrated that shoppers are now comfortable with data science determining prices, an impressive 78% in fact. The caveat is that the end price must be fair, transparent and justifiable. Consumers are even tolerant of frequent price fluctuations if these are perceived to be within a “fair” range and based on said data science.
Price alterations are no longer logistically unwieldy, time-consuming and prone to error. With modern digitalised systems, businesses can adjust prices centrally and have them applied on shelf, at point of sale and online in seconds; the impact on your profits will be rapid.
Decide on a Suitable Pricing Objective
A pricing objective underpins the pricing process for a product and should reflect your company's marketing, financial, strategic and product goals, as well as consumer price expectations, plus the levels of your available stock and production resources. The four types of pricing objectives include profit-oriented, competitor-based, market penetration and skimming. Which one best suits your needs?
Firstly, let's look at profit-oriented pricing: well, in a manner, all pricing is profit-oriented because you need to earn a profit to stay in business. However, profit-oriented pricing makes profit the top priority when figuring out the ideal price. A profit-oriented pricing strategy looks for the "sweet spot" that allows you to charge as much as possible without alienating customers. You can either aim to maximise profit per unit relative to cost of goods sold and other operating costs, or aim to maximise overall profit by setting a price that is competitive enough to increase the overall number of units you sell.
Secondly, competitor-based pricing: this uses the price you set to appeal to customers and define your position relative to your competitors. It doesn't necessarily rely on setting a lower price, although this will certainly appeal to the most price-sensitive. You can use competitor-based pricing effectively by setting a price that's an approximation of other similar products or by choosing a higher price that sends out a message that your product is somehow superior.
Thirdly, market penetration pricing: if you want to get a foothold in a competitive market you might offer a low initial price to attract customers on the basis of price. This way you start building a reputation and loyal customers who will hopefully allow you to charge more eventually. Sounds risky but this approach can be successful if your products really do have appealing qualities. A penetration strategy might be right for you if you are in a position to rapidly gain market share, bring down unit costs or purposefully price low to create barriers to entry.
Lastly, skimming pricing strategy: this expression comes from the farming practice of milking cows - the cream rises to the top and you skim it off. Skimming uses a reputation that has already been built to charge high prices from early adopters. If customers are passionate about your product(s) and willing to pay extra to be the first to have them, you can charge high prices when you first introduce a new product, and then lower the prices once you've already attracted the people who are willing to pay more. Certain customer segments will buy a product even at a premium price in order to be acknowledged leaders. The best examples are purchasers of movies, music, online games, gaming consoles, smartphones and luxury vehicles.
Don’t give away too much on promotions
Are you damaging profits, margins and customer loyalty with promotions on items that your customers would have willingly paid full price for? Is there a suspicion amongst your shoppers that the items on promotion are just what you want to get rid of? A slight sign of desperation perhaps? According to the above-mentioned Forrester research, 37% of shoppers said that receiving irrelevant offers caused them to feel annoyed, shop at that retailer less often, or were just plain ignored. 17% of those canvassed said they don’t want to receive promotions at all!
The amount of margin and profit retailers are losing through unwise promotions is enormous. Rather than slash prices, companies may want to consider temporary promotions, non-monetary discounts, or discounts that help build volume. BlackCurve offers AI-powered solutions that will enable your business to reach potential customers with the promotions they care about most, at the right time and in their preferred channel.
Anyway, it is very rare that lowering prices by itself can generate enough extra demand to achieve incremental profits. A company with 10% profitability must get greater than a 10% increase in volume to recompense for just a 1% decrease in price. Imagine how much volume must be regained to offset a 5% decrease in price! Lowering prices is definitely not a recipe for improved profitability.
If you are aiming to attract new customers try "trial only" incentives that are representative of your service and value features; do this without offering price concessions that can undermine your all-important value proposition.
Post lockdown, you may feel under pressure to discount prices, particularly if your competitors are dropping prices. Try to resist the pressure. If you feel that concessions or “investments” in your customers are required, avoid letting them erode your prices. Instead, focus on non-price ways to help or impress your customers, e.g. a charity donation on purchases.
Make Your Pricing Fair and Value-Based
It should all be about how much the customer values what you are selling and what they are prepared to pay for that value. Customers have no interest in your costs, just the value they are receiving at a particular price. A willingness to pay does differ between different demographics, regions, and even offer but, if you make allowances for these differences, you are sure to get pretty close to an acceptable price. Consumers everywhere generally go with their gut-feeling and choose the product that provides the most attributes at the fairest price.
As value-based pricing is thought of as the pinnacle of pricing, BlackCurve pricing software helps you arrive at a numerical evaluation of what your customers are willing to pay. The science will maximise your profits whilst eliminating any doubt in your customers' minds that your prices are inflated.
The downside of value-based pricing is that it cannot be implemented overnight; the more data you can collect through customer surveys, competitor analysis and interviews the more informed decisions you can make about a profit-maximising price. The good news is that a value-based strategy enables you to extend the life-cycle of existing products and capture the maximum value of new products.
If done correctly, value-based pricing helps you generate the most profit and also develop higher quality products. These products raise the perceived value and may even allow you to charge a higher price. Value is also offered with efficient customer service, selection, availability, ease of doing business, reputation and trust. Try investing in efforts to improve your online customer buying experience to increase value.
Sort out supply and demand issues
In the coming months you may experience supply disruptions from outside forces beyond your control. However, it’s important that you don’t allow any potential service failures to dictate your pricing strategy.
In a crisis, consumers think it is grossly unfair to put up prices. Thankfully, most companies unreservedly understand that abiding by the social norms of fairness should be part of their business model. Recently, large retail chains responded to the shortage of toilet paper not by raising the price but by limiting the amount each customer could buy. Amazon and eBay prohibited what was viewed as price gouging on their sites.
Tyler Cowen, an economist from George Mason University has said he wishes it were OK to raise prices for coronavirus essentials because “Higher prices discourage panic buying and increase the chance that the people who truly need particular goods and services have a greater chance of getting them." On the flipside, Professor Richard Thaler from the Booth School of Business at the University of Chicago, has said "If the next shortage is meat and a store owner realises that there is only one package of pork chops left, it would be unwise to sell it at auction to the highest bidder". Enough said!!
The CMA and the General Pharmaceutical Council have reportedly warned UK pharmacies not to overcharge customers for in-demand items such as face masks, hand sanitiser and paracetamol during the pandemic. They recognised that wholesale prices for some items had increased as a result of high demand and this might justify limited mark-ups but pharmacies should not be applying these unreasonably.
See how BlackCurve can optimise your prices today. Book a chat with us today.
References
https://medium.com/thinkpricing/why-pricing-is-crucial-for-you-your-customer-and-your-company-2ace47839f70
https://www.retailgazette.co.uk/blog/2020/06/shops-to-be-prosecuted-for-raising-face-mask-prices-cma-warns/
https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/pricing-in-a-pandemic-navigating-the-covid-19-crisis#
https://resources.pros.com/blog/pricing-suggestions-post-covid-19
https://blog.hubspot.com/sales/pricing-strategy
https://www.nytimes.com/2020/05/20/business/supply-and-demand-isnt-fair.html
https://smallbusiness.chron.com/four-types-pricing-objectives-33873.ht