Member Article

The Pricing Conundrum: Achieving Success with the Right Strategy

There are many factors that pose a challenge for new products and new market entrants. Pricing is one of them.

When it comes to pricing, it is a dark art, especially in the early stages. In the absence of any experience in trading or knowledge of the market, how can you determine the right price for your product or service?

No matter if you are a startup launching your first product or an international newcomer. You may find things confusing. The process of convincing your clients to try and purchase your product is not easy. Pricing your product correctly can be a challenge. You want it to be high enough to cover the costs, but low enough to attract customers. What is the best approach? One thing is certain, pricing can be a difficult business and many get things completely wrong.

This pricing guide will help you determine how to approach it and what to charge clients for your product or service. It’s important to think about the startup cost, the amount of time and resources you’re going to put in, and what kind of customer base you’re going to go after in order to have a successful product or service.

The Pitfalls of a Give-Away Strategy

A few years ago, a high-end furniture designer from the EU contacted us for market strategy advice. They had previously attempted to break into the UK market with a give-away strategy but had not achieved the desired results. They wanted to understand what had gone wrong and how they could improve their approach.

They offered free, elaborate project designs to interested parties, hoping that these designs would lead to sales of their furniture. Their terms and conditions for the give-away were basic and straightforward.

The strategy generated a high volume of inquiries through word of mouth, and the furniture designer responded by assigning a dedicated designer team to handle the projects. However, despite customers being satisfied with the free designs, the strategy did not lead to significant sales of their high-end furniture. Instead, many customers chose to use local contractors to fit furniture that they purchased elsewhere. One reason for this could be that the terms and conditions of the give-away did not offer sufficient incentive for customers to purchase the furniture from the designer. To improve the strategy, the designer could have offered discounts or other incentives to customers who purchased and installed their furniture. This would have created a stronger connection between the free designs and the purchase of their high-end furniture. Additionally, the designer could have provided more guidance and support to customers to ensure that their furniture was installed correctly, which would have increased customer satisfaction and the likelihood of repeat business.

Let’s look at two useful and known strategies for new product pricing market-skimming pricing and market-penetration pricing used by Apple and Android respectively. Market skimming starts with a high price for a new product to skim revenues layer by layer by those who are willing to pay the high price at the beginning. The price is then lowered to skim maximum profit for each segment. This works well for Apple users who are more than happy to pay the initially higher price to get their hands on the latest iPhone. Penetration pricing, on the contrary, starts with a low price with the aim to penetrate the market quickly so there is a large number of buyers but profitability is lower. The high sales volume often leads to falling costs and that allows for offering the product at a lower price. This strategy works well provided it’s introduced in a price-sensitive market, production and distribution costs decrease with the volume increase. It works best when competition is kept out of the market, too.

Following industry rules while marketing your new product is not going to take you too far either. If you keep making products or services just like your competitors at a price that your customers will pay, fair enough. But the key is to find a competitive edge so you can make more profit. Understanding the sources of competitive advantage could be a step in the right direction. Differentiating. It will help you make the right decisions and plan and run effective campaigns. So look at what you’re offering in the marketplace. Do you have competitive advantages? Are they long-term?

Do not sell yourself short. Price competition is dangerous, and it’ll work against you. The price you pay to become an all-time cheap supplier is close to zero margins. It is more appealing (but rather difficult) to compete while creating new markets as when your product is so different or innovative it becomes a new category.

There is a significant shift to value-based pricing and how companies present their products or services to purchasers. Indicators like market demand no longer only influence long-term success, but rather profitability, quality of delivery, good customer service and communications take the lead.

Unlocking the True Value of Your Solutions: A Case Study in Pricing Strategy

A while ago, we conducted a comprehensive health check on a tech company, aimed at assessing their performance and identifying areas for improvement.

Our analysis involved a review of the company’s UK sales in comparison to their domestic market, their competitors and the potential value of opportunities available to them. Prior to engaging with us, the company had been underselling their services by two to three times compared to their British rivals, despite offering an equally good service. Our in-depth review of their UK activity highlighted this disparity and gave us valuable insights into their pricing strategy.

However, the most significant finding was that the company had never considered the value that their solutions could bring to their prospects, or the pains they could alleviate. For instance, if their bespoke solution could save a client £2 million in a month, it was crucial to factor this into the pricing of their service or product.

By working with us, the tech company was able to gain a deeper understanding of their market and pricing strategy. As a result, they were able to adjust their pricing to better reflect the value of their solutions, and achieve greater success in the UK market.

Pricing strategy is a critical component of any successful business, and it must be tailored to suit the specific lifecycle of each product. Adapting your pricing strategy regularly, based on comprehensive market research and analysis, is essential for staying competitive and profitable in today’s fast-paced business environment. As your business grows and evolves, it is important to reassess your pricing structure to reflect the increased value you are providing to your clients. By leveraging your team’s expertise, resources, and experience, you can develop a pricing strategy that accurately reflects the true worth of your products or services, while maximising profits. At the end of the day, effective pricing is a crucial element in maintaining a successful business, and it requires ongoing attention and adjustment to remain effective in the face of changing market conditions and business dynamics.

Author: Patrycja Maksymowicz

This was posted in Bdaily's Members' News section by Open Solutions Global Limited .