Charles Toftoy, a revered professor at George Washington University, known for his management sciences lectures, has the following to say about pricing – ‘it’s the toughest thing to do’. Most entrepreneurs agree that pricing is as much an art as a science. There is a lot more than mathematics involved in working out the right pricing.
The Critical Question of Pricing
Correct pricing not only draws more sales, but also enables the success for marketing goals such as customer pool expansion, brand impression management, etc. On the other hand, wrong pricing can be the undoing of any business, causing severe losses and taking the fizz out of marketing campaigns. In spite of the criticality of ‘pricing’, it’s not uncommon for businesses to get their pricing wrong, horribly wrong. Here are some telltale signs that might warrant a deeper look at how you are pricing your products.
Is Your Brand Perceived at Lower Quality Among Comparable Similar Brands?
It’s tough entering markets where the competition is tough. Businessmen often make a conscious decision to price their products a notch lower than those of their competitors, hoping that the move would drive up volumes and would hence cover up the price differential. Provided you have capacity to scale up, this is not a bad strategy.
However, if market surveys, customer opinions, and the general market pulse suggest that your products are viewed as mediocre quality as compared to similar products from your competitors, chances are that the low price is fuelling such opinions. In competitive markets, quality is a key differentiator, which always makes the under-pricing strategy a risky bet.
Is Overpricing Hurting Your Business?
Entrepreneurs are known to make the mistake of including too many operational factors into the pricing decision or their products. Here are some indicators of overpricing:
- Customers are not returning for repeat purchases
- Sales volumes are stuck
- Lesser store visits
- Shorter interaction spans of salespeople and prospects
- Your only experience sales surges when you float discounts
A stellar question to ask yourself while deciding pricing is – how much will I pay for this product? Overpricing can really set your business back, as customers can literally wipe your brand off their minds, unless your business has the capital to keep on reinforcing the brand image as ‘premium’, so that shoppers have the motivation to buy when they move to higher income brackets.
Tricky stuff? We have some suggestions….
Smart Strategies to Fine Tune Pricing without Risking Brand Equity Dilution
Create Brand Extensions – You might want to check whether consumers are ready to pay a higher price by launching ‘limited edition’ and ‘premium’ ranges of your products. Similarly, you can launch ‘Value’ ranges to check whether the consumers perceive the same as a quality dilution.
Ask yourself these questions:
- How much is the market willing to pay?
- Is the product visible enough, and is frequently shopped for?
- The expected sales volume you can achieve in a given timeframe.
- What are your competitors charging?
- How are these products perceived in the market?
Track Successful Competitors – Outline the most critical attributes of your brand and product line, identify comparable brands that are reporting growth, and analyze their pricing mix. Such analyzes invariably involves top level pricing and product managers, and big firms are even known to hire consultants for this activity of price restructuring.