Part 4: Pricing Approach

To price or not to price… that’s not a question… we need a price! There’s a lot of pricing approaches, strategies, models… you name it, and there’s no perfect strategy. In my experience, pricing strategies need to be dynamic, proactive or responsive (preferably proactive). Here are some:

1️⃣ Cost-based: this is simple, know your cost and add a markup. “Simple” math; this could work as a starting point. What’s my cost and what’s my target margin and do a simple markup; but after that I have to bring in other factors, such as value of my product to the market and price of competitive products, and I continue to “play” with my price.

2️⃣ Value-based: this is based on the perceived value of your product or service to the target market. This can maximize profit and can be a good option if your product is the “only” one in the market, is a patent and offers a really good trade-off for its cost. I think the key here is that consumers are not able to compare to anything else, because there’s no comparison, so they would just need to define if the benefit they’re receiving is fair or if they’re getting more in return.

3️⃣ Competitor-based: this is based on what your competitors are charging. I honestly don’t think this is a sustainable strategy, I think this works for a promotional plan. Not all companies have the same costs or have the same target margins, and you may start a never-ending price war. I’m not saying not to react to competitors’ pricing but be careful. You may see this more in E-Comm, with so many price surveillance tools, websites are reactive to a lower price available online.

3️⃣ Penetration pricing: when launching a product, you start with a low price, you get a strong customer base and start changing your pricing gradually. Just be clear of the amount of time or product volume you’re able to sustain with this lower price.

5️⃣ Bundle pricing: group several products or services, and assign a price, usually lower than buying all of those products separately. By making bundles, you may be able to save on packaging as well – one box for 3 products, instead of 3 boxes.

Another important factor to consider is if the product will be part of a larger product catalog, if so, we need to consider organization’s existing (and proven) pricing strategies, be sure that the price makes sense with price of other products in our catalog and that it will not cannibalize other products.

I could go on and on about pricing…numbers are fun that way; there’s so many ways to look at them, and at the end, they make sense.

Please remember, this is not the absolute truth, it’s what I’ve learned and has worked for me while managing durable goods.

📢 Stay tuned for Part 5: Customer Input!