21 January 2010

Pricing Series: Cost up? But what’s the true value?

Are you among the many who mark up manufacturing costs by a little to determine the sales price of your products?  If so, this pricing strategy may not be the best for getting optimal return on your investment.  The market may be willing to pay more for your products, or you may be able to expand your customer base by charging incrementally less for certain products, thereby realizing more total revenue in spite of slightly lower profit margins on some of the products in your portfolio.

To uncover the true value of your products, begin by doing a little research…right, I know, who has time to do research?   I think that you do, and you will want to, especially when you remember that a percentage price increase is more valuable than the same percentage cost reduction when determining bottom-line profit.  So now that you are convinced that price matters more than just a little, there are a few aspects of your business that you will want to get to know better to help you better manage price and value—

Your competition:  who are your competitors?  How are their products different from yours?  What price are they charging?  Understanding the competition will help you know how to position your products to maximize revenue.

Your products:  what is the breadth and depth of your portfolio?  Do you offer product characteristics that your competitors don’t?  Are these characteristics valuable to your customers?  Can you eliminate part of the portfolio to focus on higher / lower margin products?

Your customers:  who are your customers?  Are they value-oriented, or are they willing to pay a little more for slightly better quality or a few more cosmetic features?  Can you differentiate your customer base so as to weed out the premium customers from base business?  Charging the premium customer more will enhance the value of your business for your sake and your customers’.

Your services: do you offer services that can be bundled to products to enhance attractiveness?  Can you guarantee quality or reliability?  Can you tie the guarantee to a warranty agreement?  Do your services enhance or detract from your product offerings?  You will want to align your products and services to increase value for your business.

Now that you understand your business and the market better, you should be able to gauge the true value of your products and services irrespective of the cost to produce them.  It is time to incorporate what you’ve learned during your research about your competitors, your customers, and your products and services into your marketing and sales schemes.  You’ve got something that’s better than the rest, so tell everyone about it and ask them to pay the right price for it, i.e. the price that allows you to realize the true value and potential of your overall business.

  1. Bernstein, Jerry.  “The Secrets to Price-Setting.”  Business Week Online.  6 November 2006.

Posted by: Tamboura Gaskins at 21 January 2010 3:07 pm | Category: Pricing Strategy | Tags:

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2 Responses to “Pricing Series: Cost up? But what’s the true value?”

  1. Shalini Bahl says:
    January 24, 2010 at 11:03 pm

    Pricing is certainly very tricky and more so if the products are intangible.

    In addition to the above factors I wrote about other factors to consider like your pricing objectives, the value you are providing, your inner beliefs, and desired positioning. You can read the full article in my MindfulMarketers Blog:

    http://ow.ly/ZYUj

  2. tgaskins says:
    January 25, 2010 at 9:16 am

    Thanks, Shalini, for your insightful comments. I look forward to reading your blog post at MindfulMarketers.

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