5 Tips for an Effective Pricing Strategy
The COVID-19 pandemic has had a visceral impact on global prices. It has affected customers’ demand, global trade, supply linkages, and investments.
The World Bank predicts that there will be a 5.2% contraction in the global economy in 2021. Hence, it is time to start reevaluating your current pricing strategies and ensure they can adapt to the changing market landscape ahead.
Nonetheless, finding an effective pricing strategy can be tricky. There are a lot of internal and external factors to consider before fully implementing it across all your products and services. Moreover, it will take a considerable time for research, planning, and testing to see its impact on your profits and sales.
With that, here are some tips for an effective pricing strategy business plan.
1. Gauge your resources
The price of a product or service often depends on the return of investment (ROI). This helps you measure the profitability of your product or service in relation to your resources. You want to be getting more than the amount you spent on the resources consumed during the process.
For products, you want to calculate the expense required to get it out on shelves or carts. This includes labor costs, machinery, equipment, materials, supplies, and others. For services, on the other hand, you can include manpower and the software or tool used to deliver the said services. By gauging how many resources you used for a product or service, you can then decide which pricing models will work best for your business.
2. Determine your target market
Prices play a crucial role in influencing buyers’ decisions. Therefore, you must have access to your target market’s mindset and behaviors to find the right types of pricing strategy for your target market. You can do this by segmenting your market and determining their social-economic background.
For example, if you are a SaaS company that focuses on providing solutions for businesses of all sizes, instead of having one fixed price for your product, you can offer different price ranges depending on your clients’ business size and corresponding requirements. You can have a lower subscription plan for a small business, and higher plans one for a larger enterprise. The features available for these subscriptions will also vary, wherein the more affordable version will have more basic or limited access than the more expensive ones.
3. Monitor industry price
Marketers from the same industry have more or less the same perception of the value of their product or service. This results in a standardized industry markup which businesses add on top of the initial cost for their respective product or service. While this markup varies within the same industry, the price differences between businesses are usually not too far off from one another.
When deciding on the price of your product, you must be in tune with the state of your industry. This goes beyond meeting your competitors’ pricing. It takes the pulse of the industry as a whole including those companies who aren’t your direct competitors per se. This gives you an idea of the appropriate price range for your product or service.
4. Check out competitors
Your competitors can be critical in developing pricing models for your product or service. This approach allows your competitors to set the price first, and then meet them head-on later on. You can offer lower or higher prices depending on how you want to market your product or service.
Customers like to keep their options open. Before they fully commit to a certain product or service, they do their research first. This often includes comparing the prices, deals, and features offered by different companies. To remain competitive, you must keep an eye on what your competitors are offering. This way, you can react quickly to any changes in the market.
5. Consider dynamic pricing
Every country has its own policy regarding value-added tax (VAT), which is important to consider when you plan to expand your business’ geographic reach. Determining the right pricing strategy is crucial so you can maximize your ROI and avoid losing money due to incorrectly calculated tax or noncompliance.
This is where dynamic pricing can come in handy. This is a strategy where you adopt flexibility in terms of pricing your products and services. You change it in response to real-time supply and demand. There are various tools available in the market, like this FinancesOnline compilation of tax software examples. It’s essential to conduct research and compare different products to determine which one is right for you.
Get the price right
Pricing can influence your customers’ decision. It can even be the deciding factor between choosing you or your competitors. So, rise above the rest by finding the right pricing strategy for your business. Just keep these tips in mind and explore what technology has to offer to improve your current approach. One great example is LOVAT. This software will make sure that you never lose profit by keeping your prices tax complaint.