![]() Let’s take two common pricing strategies to illustrate: price skimming and cost-plus pricing (both of which we’ll discuss in more detail shortly). Pricing strategies allow you to make informed decisions on pricing changes and to understand how those changes will be impactful and appeal to your target audience. Your pricing strategy is your methodology, concept, or theory behind your product pricing. How, then, do you determine the optimal price point for your product or service? First, you need to determine the pricing strategy that best fits your revenue and organizational goals. More than that, a company’s pricing contains inherent indicators of value and how customers should perceive that product.Īt a basic level, higher-priced items are perceived as being of higher quality (a psychological phenomenon known as premium or prestige pricing) and vice versa. You need to find the right price, or prices, to maximize market penetration. Of course, by setting prices too high, you’ll alienate certain market segments and risk pricing yourself out of the market. Studies show that a pricing increase of just 1% can induce profit growth of more than 11%. The main reason is that pricing optimization leads to increased profits. So, why is it so crucial to get pricing correct? That “process” (which we’ll discuss in more detail in subsequent sections) is informed by your pricing strategy - the theory and principles behind your product pricing. The operative term in this definition is “process.” Setting your price must not be an arbitrary decision based loosely on market norms and competitor price points (though these factors should be taken into account). Simply put, pricing is the process of determining what you’re going to charge for your company’s products or services. What Is Pricing, and Why Is It Important to Get Your Pricing Right? This guide will dive deep into the importance of pricing strategy, discussing nine of the most powerful strategies before outlining how to choose the optimal approach based on the type of company you operate. However, many SaaS revenue leaders fail to put this simple idea into effective practice. It seems obvious: optimizing your pricing strategy so you’re maximizing revenue from each customer leads to improved growth and higher profit. ![]() This mistake leaves a significant revenue opportunity on the table and is responsible for as much as 18% of startup failures. Unfortunately, many organizations take a “set and forget” approach to pricing and fail to develop a comprehensive, research-backed strategy to determine appropriate pricing points. Pricing is one of the most crucial and influential levers in driving revenue for your company.
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