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How Strategic Pricing is the Biggest Lever and Competitive Tool in Product Marketing

This post is the second piece of our seven-part series explaining the reasons for product failure and how companies can overcome these obstacles.

Pricing is the biggest profit lever/driver that affects profits and strategic market positioning of a product. Pricing is a competitive tool that can help companies carve their place in the market. Setting the right price is a major strategic decision to be taken to achieve a more profitable outcome.

Strategic pricing is an essential aspect of the marketing mix that generates value and revenue. It has a direct impact on the customer’s initial purchasing journey and experience. How customers perceive product value is sometimes directly proportional to the price. So, what is strategic pricing?

There are different ways to look at strategic pricing. Some definitions learn towards creating product value, some refer to the competitive angle it offers to a company, and at times it can be that overarching business model of a company. Whichever way one looks at it, pricing is a strategy that is in alignment with a company’s culture, competitiveness, and business model.

Pricing can be the tipping point in any product’s success. It is one of the few factors that is easily applied without making changes in the production or distribution process, which are often long-drawn. It is the first customer touch-point that can create a good or bad first impression.

There are different pricing methods: Cost-plus pricing, retail pricing, manufacturing plus retail pricing, keystone pricing, bundle pricing, penetration pricing, economy or discount pricing, charm pricing, premium pricing, competitive pricing, anchor pricing, demand-based pricing, and value-based pricing.

Achieving the right level of price and the right type of pricing method is a difficult task. Setting a lower price in the initial phase of a product can get quick customers but may affect product sales volume and the bottom line. On the other hand, setting a higher price point for your product can alienate customers and change sales volume if the value perception is not on-point.

Tips for strategic pricing

While there is no straightforward one-size-fits-all answer to getting the right price, here are a few tips that can help you get closer to an ideal pricing strategy:

1. Value creation

How customers perceive the value of your product has a direct relation to the price you fix. It is super vital to correctly communicate the value, as more value add can set your product apart from that of your competition. Tim J Smith, an adjunct marketing professor at DePaul University, says, “Companies need to understand their products’ value offering compared to alternatives in the market, and the price is set according to that difference in value.”

During a project at a couponing company, we realized that customers were not clear on the product’s value proposition, and they were not ready to make that shift from the competitor’s product. To overcome this hurdle, we went back to the basics of understanding what the customer wanted and how the couponing product was helping serve the customer’s under met needs. We then translated that customer research into a value estimate and helped the company communicate product value through targeted campaigns and tools.

2. Competition

Most companies often base their prices on c. This method has its upside and downside. The upside is that you are aware of the market shifts and can adapt your price based on market movements. The downside is that sometimes companies change the price to either match or undercut that of their competitors. Outpricing your competitors can get you an initial boost of revenue and a “foot-in-the-door” but is not always beneficial to your product and can give rise to price wars.

3. Tiered pricing

One size does not fit all. It’s wise to offer a lean base price to your basic offering and add pricing layers to each additional feature or service added. Offering tiered pricing serves different needs of customers and helps them make that decision of opting for a premium product. This strategy also helps budget-conscious customers to choose a more affordable version of your product.

4. Market testing

It is common practice for companies to launch a product directly in open market waters with a pre-decided price and then adjust it based on customer reaction. This practice is highly risky as it could backfire. Speaking to your customers before a market-wide launch helps understand product value and price attractiveness and competitor shift. At Veratempo, we strongly advise our clients to test the waters in smaller focus groups. We also recommend our clients conduct an A/B test various pricing levels to identify the best options.

5. Flexibility

Pricing is not a one-time activity and requires proactivity. It needs to adapt to market demands and dynamics. Adopting a flexible approach to pricing helps companies to take into consideration changes in internal strategies. Teams must revisit the price waterfall each year, and sometimes a previously adopted pricing strategy may have to be altered to suit the market needs.

Conclusion or TL:DR

Creating the right pricing policy that achieves your business goals is an excruciating process. Your pricing strategy can be the tipping point of your product. However, it is also one of the most flexible tools in the product marketing mix, making changes easier to implement compared to production processes or distribution channels. A simple five-step process could help you sort out your pricing strategy from the outset:

– create value and communicate it well,

– research your customer,

– keep an eye on the competition, however that should not be the sole deciding factor for your price offering,

– offer different pricing layers,

– test test test your pricing strategy within a small cohort and

– most of all, be quick to adapt to market changes and needs.