Strategic Pricing


Strategic Pricing is an extension of Basic Pricing and aims to strategically create a model that gives you competitive advantages by package, and equally important communicate the price correctly based on a defined and targeted market. Strategic Pricing is the tool, frame work, to be used by sales reps, marketing department and others that is closely working with pricing.

There are several methods to be used creating a Strategic Pricing frame work, still most are based on same principles. This particular method is especially usable for senior management positions, giving an insight to a method usable when creating or confirming the quality of an existing Pricing Strategy.

Forming your Pricing Strategy is very closely related to Product Packaging and should be done parallel. I myself would recommend you to finalize the Product Packaging before you set the Strategic Prices, because it is based on the same principles and is a prerequisite for Strategic Pricing. How ever, I will here explain the basic method in order for you to understand the work flow.

The Basic Pricing will form the foundation and become the over all guideline while planning your Strategic Pricing. I use two basic steps when working with Strategic Pricing, and those are:

  1. Product Scalable Pricing
  2. Market Adjusted Pricing

Product Intuitive Pricing

Aims to particularly secure that the price/per product is correctly set up and communicated to form a competitive advantage based on over all market needs, expectations and demands. This is where you use your previously made Product Packaging Structure to be followed up with pricing. I will still describe the basic method so that you understand the principles.

“Company X chose the Product (B) although other products had better functionality and reputation, as the Product (B) could offer a module based low risk investment model to grow with.”

If you haven’t made your Product Packaging yet, create a template that divides your product into logical functionality/features side by side with the competition, as well as including any defined market needs and requirements, even if your specific product/solution initially doesn’t meet those requirements. Your aim is to be able to communicate a product/solution that exceeds the market competition/expectations, from a market/customer point of view solely by communicating the product/price strategically.

Also divide the template with different headings to create a divisible / add-on product and solution. Usually you want to present an attractive base price, with the option for the customer to then choose the features and solutions that best suit the customer, whether it is a vacuum cleaner or a more advanced product / solution.

 

The Base Product

Includes all parts that is necessary to use the product, as well as based on what the customer/market expect it to include at a minimum. In this example be a) vacuum cleaner b) A cord c) a dust bag d) instructions e) guarantee and contact information.

Add on Products

Would mean anything that can be added as an extra feature/service, but that is not necessary if not specifically wished for. That in this example could be; a stronger engine, an extended cord, a subscription service for dust bags, features improving usability for disabled, etc.

The idea is to communicate the price of the Base Product, in conjunction with the Add on Products/Features communicated with out a visible price in the initial phase, which correctly done improves the over all Image and competitive advantage.

This is just an example of how this is done in it’s simplest form and commonly used for at any professional and well aware company. The same principles are also used for more complex products/solutions as for e.g. Jet fighters, cars, financial solutions, Telecom, consulting and IT/Digital infrastructure solutions etc. A great example of how to use the Pricing Strategy to it’s advantage is the car manufacturer BMW. They are both considerably strengthening the wished for Image as well as creating a direct competitive advantage solely based on the price, but on top of, and planned in conjunction to the product/solution itself. They are rarely or at least not officially giving any discounts, with out first have packaged the specific discount to appear as a bundled special offer, to protect the over all perceived Image.

Surprisingly, most companies does not plan and continuously work with Strategic Pricing as they should, which most often is based on their own inexperience and lack of know how. The expected change in outcome when started to work with Strategic Pricing is of course varying depending on industry etc. How ever, a qualified estimated direct improvement for complex products is between 5-15 % revenue increase.

Services

Identify your services as part of the first two steps and depending on industry and market, structure it in the best way.

Added Value

In difference to Add on Products, Added Value refers to products/solutions/services that gives you the needed extra competitive advantage but with out being priced. The sole purpose is to distinguish your product/solution from others, with calculated Added Values. In this Vacuum Cleaner example, it could mean for e.g. “Free Delivery”, “Extended Full Service”, etc.

Target Group Adjusted Pricing

The second step working with Strategic Pricing is to adjust your prices based on the identified needs per segment, target group, or any other identifiable area of importance. That could also include for e.g. internal customers and partners.

Before finalizing the second step you need to define your specific target markets, and note that the quality of the work done if crucial for the end result, and can not be emphasized enough.

Summary

This above is just a brief example explaining the basic differences and the possible working process. The idea is for you to get started and find out how you significantly could improve your over all results by thoroughly and continuously work with areas that to often is overseen. The method can and should be adjusted to the need.

Strategic Pricing will in general have an direct effect on following areas:

  • Percentage closed deals compared with offers (Hit Rate %)
  • Improved initial interest
  • Improved Conversion Rates both on/off line
  • Improved over all perceived Image
  • Improved over all customer experienced quality (due to more accurately made pricing / expected pricing / in comparison with the market and needs).
  • Improved internal understanding and knowledge around pricing
  • Improved Add On Sales
  • Improved Customer Loyalty and Life Cycle Results

Don’t hesitate to contact us if there is anything you are wondering about.

 

Hello (a) West360.eu

 

example of previous work done including Strategic Pricing https://www.nets.eu/se-sv/l%C3%B6sningar