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10 Tips to Better Pricing
By: Rafi Mohammed
Posted: March 25, 2011, from the April 2011 issue of GCI Magazine.
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Many are uncomfortable setting prices above what they consider to be “fair” and are quick to offer unnecessary discounts. It is fair to charge “what the market will bear” prices to compensate for the hard work and financial risk necessary to bring products to market. It is also important to reinforce the truism that most customers are not loyal—if a new product offers a better value (more attributes and/or cheaper price), many will defect.
A Discount Today Doesn’t Guarantee a Premium Tomorrow
Many people believe that offering a discount as an incentive to trial a product will lead to future full price purchases. This rarely works out. Offering periodic discounts serves price sensitive customers (which is a great strategy) but often devalues a product in customers’ minds. This devaluation can impede future full price purchases.
Offer Product Versions
One of the easiest ways to enhance profits and better serve customers is to offer good, better and best versions. These options allow customers to choose how much to pay for a product.
Implement Differential Pricing
For any product, some customers are willing to pay more than others. Differential pricing involves offering tactics that identify and offer discounts to price sensitive customers by using hurdles, customer characteristics, selling characteristics and selling strategy tactics. For example, customers who look out for, cut out, organize, carry and then redeem coupons are demonstrating (jumping a hurdle) that low prices are important to them.
Since pricing is an underutilized strategy, it is fertile ground for new profits. The beauty of focusing on pricing is that many concepts are straightforward to implement and can start producing profits almost immediately.