Ten mistakes companies make in pricing

Price strategy is the key path for enterprises to improve their competitive advantage and bottom line. Many companies spend years increasing revenue by cutting costs, outsourcing, process reengineering, and technological innovation. However, the gains made through these approaches have been decreasing year by decade, thus requiring companies to increase their final earnings by other means.

Today, companies are trying to make huge profits by making use of customized products, information, and derivatives to curry favour with already clear market segments. However, many companies simply use a simple pricing process, not even identifying their profitable users or dividing their customer categories. Listed below are the top ten common mistakes that many companies make when pricing their products and services.

Error 1: Pricing is based on cost rather than customer value

Pricing is simply a reference to the cost of production that can result in the following two outcomes: 1 if the price is higher than the value of the customer (the subjective feelings of product values), the sales cost will increase, discount strength also need to increase, the sales cycle will be extended, resulting in a loss of profits; 2 If the price is lower than the customer's value, Commodities do sell well, but companies may not be able to maximise profits.

Error 2: Pricing based on "market"

With the "market pricing", enterprises to their goods and services to achieve the purpose of commercialization. The use of market pricing is a way for companies that are on the verge of collapse to make the most of their profits. Rather than bankrupt, management teams must find ways to differentiate between products and services, creating additional value for specific market partitions.

Error 3: Different product lines, unified profit space

The implementation of some economic policies means a rigid start, and some companies want to try to achieve the same profit for different product lines. The price law shows that different customers have different positioning for the same product. For many single products, when the pricing of a product reflects the willingness of each customer to buy, it will be the highest profit at this time. This willingness is a reflection of their value positioning for a product, and the profit margins here are quite different from the rest of the product line.

Error 4: Customer is not divided (or wrongly differentiated)

Customers can be divided according to the different requirements of the product. The price positioning of any product or service is different in different market divisions, and the pricing strategy needs to reflect this difference. Your pricing strategy should include the product's workmanship, packaging, modes of transport, choice of market needs and price structure for different customer partitions, so that the added value created for these partitions can be obtained.

Error 5: The price is fixed for a long time

Most businesses are afraid of fluctuations in price changes, so keep prices as stable as possible. Savvy companies will allow customers to adapt to the frequent changes in prices caused by their sales problems. In a short time, the market may change radically. Then it's important to find your own positioning as the market changes and you have to reflect the change by pricing changes.

Error 6: Sales incentives directly affect total income

Such a sales-based incentive could lead to a loss of corporate profits, as salespeople may be able to reduce prices to the greatest extent possible in order to make up for the shortfall in sales. The cost of such a mistake is particularly pronounced when the salesperson has the right to decide on the discount. They will always put the money on the table and say: give you a lower price, then we will deal.

ERROR 7: Change the price without estimating the competitor's response

Price strategies cannot exist in a vacuum and must take into account the movements of prospective competitors. In the change of price, it is necessary to consider not only the price fluctuation of the competitor, but also the competitive goods and the quality of service.

Error 8: Using limited resources for pricing experiments

There are three basic variables in the enterprise's profit liquidation: cost, sales, average price. Most management teams are good at cutting costs and are confident that they can boost sales. But for price-setting, it's more like a black art. As a result, most businesses only adopt simple pricing processes, while the same type of enterprise uses more sophisticated pricing processes and technologies to track control of subtle costs and real-time changes.

Error 9: No internal process has been established to optimize prices

The rush to convene a "price meeting" has become the norm – a meeting that lasts a few minutes to price a new product or service. Participants are not usually prepared, and the survey is limited to the anecdotes of salespeople, or the price lists of competitors last year, and the cost structure of goods that the CFO has based on a variety of assumptions.

Error 10: Obtaining price information through salespeople or other customer-oriented staff

Such people are unstable resources because the methods of obtaining information are contingency, and the information they obtain may be purely anecdotal. It is almost impossible for a customer to say "100% truths" to a salesperson. Savvy companies hire trained professionals to collect and analyze data to confirm and evaluate their market value.

Pricing is a direct way to provide higher profits to companies, particularly in North America, where pricing is not being effectively valued. We believe that companies such as the Stratinis Pricing Suite, which have mastered better pricing art and have efficient analytics software, can create significant differences.