The last of three steps creating your pricing structure is in advance to plan and define your correlating Business Models, which will be based on your earlier defined Target Groups and Segments. The purpose is to provide the organization with a ready to go model for each potential customer or market, in order to rapidly improve both over all quality as well as the result.
Sales Reps, Business Consultants and other related are often very clever in their own field. Some are also very competent concerning Strategic Pricing and Business Models as any. Even though a Pricing Structure and Strategy to some extent has a built in flexibility, that does not and should not leave any room for individual interpretations.
The entire idea of a Pricing Structure is to commonly work out the best possible plan, based on share holders demands, the product, the market, resources and customers etc. Often a mix of experience, historical data and comprehensive knowledge as explained in earlier sections. Individual adjustments, risk to not only lower the result, it also risk to alter the already built up and wished for Image and quality.
What is a Business Model
A Business Model is an in advance thought out go to market model, adjusted for each identified target group and segment based on previously created Base Price and Strategic Pricing. Added is also financing alternatives, loyalty schemes, tactical agreements and life cycle strategy. Together with the Business Model, that is forming the foundation for your Sales and Marketing departments, as well as others directly or indirectly involved resources.
- Base Price – The Basic Pricing Structure, also used as foundation for Strategic Pricing.
- Strategic Pricing – Pricing based on individually defined products, features, services and solutions to give you an direct competitive advantage.
- Business Models – Based on both above together with added smart financing alternatives, tactical agreements, loyalty and life cycle strategy.
When planning your Business Models, it is in most cases logical to start with the identified target groups. Having done that correctly, you have a clear vision of each target groups specific needs and circumstances important for you to build a competitive advantage.
Your basic work flow is as the following steps, adjusted do specific industry and needs:
- Identify Target Groups/Segments
- Identify the different needs, demands and possible competitive advantages of the same
- Based on above in detail identify competitive financing alternatives such as renting, leasing, partnership, awards, buy back, renewals etc. Make sure you negotiate with any potential financing partners.
- Identify “Easy In” options/alternatives. How can you as a supplier make it easier for the potential target group to enter an agreement. Potential Partnerships, Buy Back promises, Lowering the initial amount due to smart financing. One of the main obstacles when entering an agreement, is the potential risk the customer also in agreeing too. Ask yourself how you can share or take responsibility for the expected risk.
- Include possible loyalty schemes. Goes in both directions.
- How can you provide and agreement with natural incentives for the customer to improve the entire life cycle revenue? How can that be used, thinking about “Easy In”.
- What agreement is most suitable for this specific target group? Tactical agreement is more extensive and important than most knows. A correct agreement may improve the business ten fault by itself. I will cover this area in a specific section later on.
- Is test installations or trial period a valid option?
- What is most beneficial based on possible regulations, tax regulations etc. Rent of Services and Solutions in certain countries are deductible.
The idea is to identify all possible advantages to improve your company’s potential in communication with your market and customers. All together, you will find out that all those small bits and peaces jointly meant a significant improvement both in quality, revenue and result, with out being dependent on individuals.