Use Pricing Software
Pricing strategy usually involves some variation of gaining market share versus maximizing short term profits.
It involves approaches like
But, to execute your strategy, you have to select the price. And that's not so easy, even when you have clearly determined your strategy.
Price too high and you lose customers. Price too low and you lose revenue and therefore profits. Mix the two up and you lose both customers and profits! Not to mention messing up your pricing strategy.
Until recently, the main method for determining price involved:
- asking key customers
- getting feedback from salespeople
- soliciting advice from business associates
- considering typical customers' "disposable income".
Then mixing this "data" together to somehow magically come up with "the number."
Of course, larger companies - with deeper pockets - used expensive pricing consultants. They were able to do more objective measuring, but their services weren't available to many family businesses.
Then, we found a pricing software tool that promised to not only handle measuring and gathering market data, but also to analyze and present information to support the pricing decision, and therefore help immensely in executing a pricing strategy. And, to do all this at a price that made it available for small and medium as well as large businesses - in short - available to every family business to help them with their pricing strategy.
Our colleagues at Wizard Publishers had just released a new product and had priced it using the traditional "magic mixing" method. They were excited and ready to help us test the new pricing software tool.
In the inaugural issue of our Understanding Family Business newsletter, our readers were invited to help us and Wizard Publishers with the online test, and we promised a full write-up of the experience and results.
We now have a full report of that test - and it was both revealing and helpful!
Here is a link to the full report, and the conclusion Wizard Publishers reached - how they applied a pricing strategy based on the information they got from the pricing software.
Pricing Software Test
[Click here to read the full report!]
Make Your Price Sell! [MYPS!]
Wizard Publisher's "160 Key Business Questions"
OK, time for a decision...!
Pricing Strategy Leads to Pricing Decision
We want to set a price that fits our business model - satisfies our pricing strategy - and that maximizes our profit. And we have the information at hand now to make the decision. Looking just at profits, we can choose either $25 or $50, which will yield virtually the same gross profit [$2,125 or $2,000 respectively]. Now we look at our business model...
At Wizard Publishers, ours is to start and grow an online business. To do that, we need to attract and retain satisfied customers while being profitable. So, our pricing strategy will lean towards penetration or higher volume decisions. For about the same amount of profit, we can sell 85 or 40 units per 100 responses.
At the same time, 160 Key Business Questions is not [yet!] a household word and mass market item, so we can't expect to get carried away with penetration or market domination.
We also see that if we price much below $25, gross profit drops off drastically, which hurts our profit strategy, but that doesn't "buy" us more than a relatively few extra unit sales, so it doesn't help us get much more market penetration. So there is no point lowering the price below $25. At prices up to about $17.50, we would only sell another 15 units per 100 responses - that is, we would sell 100 units per 100 responses in this price range.
Our pricing strategy favoring penetration [but not at any cost!] leads us to select the $25 level. And , we apply the odd-even pricing technique to actually set the price at $24.95.
Since we found that our initial survey respondents did not have a high net buying profile for our type of product, we have decided that in addition to seeking out new markets, we will check our pricing strategy and do a follow-up survey to see that we are finding those with a higher net buying profile, and whether or not a price increase would be warranted when we find that new group.
Well! What a wealth of information and insight from 6 carefully-thought-out questions - and it only takes visitors 1 minute to complete the survey! You can see why we are so keen to work with Wizard Publishers to get this incredible tool into widespread use.
Remember, it can be adapted quite easily for use offline where either we, or our client, do the data entry from manually-completed survey forms.
Family Business Experts
Family Values and
Return from Pricing Strategy to
The 4 Ps of Marketing