Pricing Strategy Guide for Your Business

Definition of pricing

Don’t you wish that pricing could be simple? Total product cost + target margin = price. Sadly, it’s not quite that easy. When it comes to setting pricing, there are many factors at play that should influence your pricing, particularly in times of volatility when demand is in flux and overheads are more variable than ever.

Before you start to think about pricing you need to consider the following market data:

• Demand and potential sales volumes
• What the customer will be willing to pay
• Competition and competitive pricing
• Fixed and variable costs
• Trade margins
• Production, storage, and distribution

What are pricing strategies

A pricing strategy is how you determine what price you charge – this could be based on the margin you need to achieve, the volumes of sales you want to make, or how you can penetrate a new market.

A pricing strategy leverages the market data we referred to earlier, to make smart decisions about how you price to meet your business goals.

Pricing strategy examples

• Penetration pricing – helps you enter a market with pricing that undercuts the competition
• Promotional pricing – short-term deals and discounts
• Competitive pricing – price matching or beating the competition to gain market share
• Value pricing – pricing determined by the perceived value to the customer
• Bundle pricing – Selling multiple products at a discounted rate to the cost of the individual items
• Premium pricing – higher pricing that underscores the value of the brand or goods
• Geographical pricing – pricing tailored to the location of the customer, based on factors such as demand, availability, and shipping costs
• Dynamic pricing – flexible pricing that tends to increase in response to increased demand

Why Pricing strategy is important

A good pricing strategy will optimise sales and profitability. It can be the difference between riding high and crash and burn.

Getting pricing right has a huge impact on marketing effectiveness as well as operations. If pricing isn’t right, the marketing spend is wasted and if it isn’t delivering the volume, value or margins required then pressure on operating costs intensifies.

Airlines, grocery, and luxury goods – to name a few – have long known the value of pricing and embraced some of the most obvious but effective pricing strategies. But as market conditions become increasingly volatile more businesses are looking at pricing and considering how it can work harder for them. Pricing strategy is no longer confined to marketing and sales teams, it’s a boardroom topic and under more scrutiny than ever.

Make instant changes to your prices when costs change

Okay – the first rule to an effective pricing strategy is not to erode your margin when your cost price fluctuates. Some industries are extremely price sensitive, some have raw materials that change in cost weekly – even daily. Without any means to dynamically adjust your sales price based on your cost of goods, you’re at the mercy of margin volatility.

This is all good in theory but what about companies that have many places and ways to derive a price depending on the sales channel. That is simple – change it. With a centralised pricing tool, there’s no need to keep pricing in disparate applications. When a new price is available, you should be able to make those changes instantly. This means your Sales team will have full confidence in the prices in front of them.

Have the ability to offer promotion mechanics that persuade buying decisions

If pricing discounts are part of your pricing strategy, then being able to apply them at the time of sale is crucial. Your price strategy should outline what kinds of price tactics you can employ to persuade buyers of your products or services. We are well past the off invoice discount, there are many more ways to price promote.

Empowering your sales team to make pricing decisions within guardrails and apply discounts at the time of sale, means your sales team can price on the fly and beat any competitor’s price. A pricing tool provides complete control over the discount value and application to protect your margins. A complex pricing strategy need not be complicated, a pricing tool can manage the complexity for you.

Personalised pricing strategies

Without adding more complexity you can choose to apply custom pricing to groups of customers or to products in order to recognise favourable terms. For example, stepped, inclusive and direct volume breaks are all ways to personalise pricing based on the kind of order a customer is placing. You want to reward and encourage, these are strategies to help you change the regular buying patterns and behaviours.

The C-Suite is also becoming more and more interested in pricing strategy. This means pricing managers and experts need to be able to justify their pricing and promotion decisions. If you’re in charge of pricing you need to make it clear why one company has a different rate than another. They could be out-performing the other customer who received a lower discount, or they needed to beat a competitor’s price.

How to create a winning pricing strategy?

Having a planned pricing strategy is going to reward companies that get it right. The ones that do often have a combination of strategies according to their range of channels, SKUs, and audiences. A nuanced approach to pricing is what sets successful businesses apart.

Then it comes down to being responsive and agile to changing market conditions, watching how your pricing rules are working, what’s influencing revenue and margin, and pivoting or fine-tuning accordingly.

How Flintfox helps companies in Pricing strategy

So you’ve done the work, analysed the market, landed on a pricing strategy, or better still, a combination of pricing strategies and you have a good handle on how each SKUs should be priced to meet your objectives. But now you need to execute it.

The more sophisticated your pricing strategy, the better your chances of success. But sophisticated pricing strategies can result in thousands of pricing rules. Manually implementing then analysing and managing those rules takes hundreds of man hours each month, as a result, the data is often out of date by the time you come to analyse it.

Flintfox gives companies the tools they need to execute their pricing strategies, no matter how complex. Our pricing engine serves up to 5,000 prices per second, ensuring you charge the price you need to get the margin and business outcome you’re looking for.

Real-time margin reporting gives up to the minute visibility of how those prices are performing, flagging any margin erosion, and enabling you to make changes on the fly so you’re not caught short.

Final Takeaway

Spending time building a pricing strategy is worth the upfront time investment, it will boost competitiveness and ultimately drive long-term business success. By equipping yourself with a pricing tool, you can realise the potential of your pricing strategy, demonstrate its impact on the business and continue to thrive as the market and your business evolves.

Learn how Flintfox can help power up your pricing strategy.