In 2016 we saw several examples of companies raising prices rapidly and causing an uproar in the process. Classpass canceled their subscription to unlimited boutique fitness classes, What The Hell Is
Going On With Classpass?. Also Mylan, Valeant, and Turing were all in the news for substantially raising the prices of popular drugs. In fact, they were all called to testify before Congress and were scolded for their actions. Their customers are and have been actively looking for alternatives. These few examples do not mean you should forego price
increases or be timid about them; but they do mean you should be thoughtful in the process. Make sure your pricing strategy is multi-dimensional and includes steps to limit your risks when raising prices. Show The first step in setting defendable price increases is to avoid having across-the-board common price increases. No matter what price increase percentage you pick, you run the risk of being too high for certain products, and you will definitely miss opportunities on other products. Other elements to consider include:
Absent from the list above is the change in the cost to produce your product or service, because cost should not be the driver of prices. Having said that, there is no doubt that when customers know your costs are increasing, they are more tolerant of price changes. However, customers care more about how much they have to pay compared to the value they will receive; and those factors will have a much greater impact on their price sensitivity. If you consider the dimensions above, you will be well on your way to setting product-specific price increases that enable you to capture more margin without too much risk. The last step is to communicate your price changes effectively. That discussion should always emphasize what you do for your customers and how that provides value to them. Be honest and direct about the price changes, and don’t apologize for them. If your prices are really aligned with value, the customers will accept them. Make sure you give your customers a reasonable amount of notice. Nobody likes surprises, and an adequate notice period let’s your customers plan for the impact. It will also help your customers to offer alternatives. De-scoped products that offer a lower price, rebates for significant volume increases, incentives to order in larger quantities, and product/service bundles can help customers reduce the impact of price increases. Although we have seen plenty of examples of companies angering their customers with price increases, that should not be the norm. It is clear that huge price increases can cause a backlash, but strategic price increases can improve your profitability without creating customer problems. Be thoughtful and vary your price changes according to the products and circumstances to maximize your upside and minimize your risks. Which pricing strategy is appropriate in price sensitive market?Penetration pricing
“Penetration pricing makes sense when you're setting a low price early on to quickly build a large customer base,” says Dolansky. For example, in a market with numerous similar products and customers sensitive to price, a significantly lower price can make your product stand out.
What are the 5 levels of strategic pricing?Although every business has a pricing process, it can be difficult to determine where your organization falls in the 5-Levels:. Level 1: The Firefighter. Firefighters constantly put themselves in harm's way, often for little reward. ... . Level 3: The Partner. ... . Level 4: The Scientist. ... . Level 5: The Master.. What four factors must be taken into consideration to determine the right price for a product?Four key market factors that must be considered when reviewing and establishing prices are: costs and expenses, supply and demand, consumer perceptions, and competition.
Which of the following pricing strategies focuses on providing value to the customer?Value-based pricing is a strategy of setting prices primarily based on a consumer's perceived value of a product or service. Value pricing is customer-focused, meaning companies base their pricing on how much the customer believes a product is worth.
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