Pricing Strategy

Many organisations talking about their marketing strategy via various platforms such as social media, billboards, newspapers and tv advertisement in order to create customers awareness and branding for their products or services. However, not many of them aware that pricing of their products or services plays an important role as well.

“Price” is the consideration that customers willing to pay in exchange of your products or services. To determine the price for a product or service is not as simple as just set the price above total costs and the difference between price and costs is a profit.

Unless you are monopoly in the market where consumers have no choice but just buy from you, then you can determine the price of your product or service without worry of competitors in the market. However, this is not always true. Therefore, organisation needs to take into consideration that price for your product and service must be competitive in the market and yet profitable for the business.

“Profit” is the difference between revenue and costs of production. Before an organisation determine their price for product or service, it is important that for an organisation to understand the costs behaviour of producing their product or provision of service. By knowing the costs behaviour, you can easily determine the break-even point for your product or service at a given price tag. By doing this, you can then set the sales target for your sales team and you can monitor result and profitability of business.

Price determined for your product or service must have the objective that is able to improve your cash flow and profit margin. In order to achieve the objectives, you must understand the price elasticity of consumers against your product or service is relatively inelastic, then a raise of your product or service price will result in increase in total revenue and profit. However, in competitive business environment, where consumers have plenty of alternative choices in the market, most of the time, consumers are normally price sensitive. Therefore, business owners need to take into consideration of customers behaviours as well when determine their pricing.

It is important to understand customers’ perception against your product or service. Setting of prices for product or service is not just based on accounting number but understanding human behaviour plays a more important role because most of the time consumers spending are based on emotional decision. Have you bought some products but afterwards, you found that those are not something that you really need and not using? How can this happen? This could probably at the point of buying your feel that it is worth the price and it is the opportunity that you cannot miss without rationally think whether this is something that you need. This is an example where it shows a positive relationship between pricing strategy and human buying behaviour and the importance of both elements combined that work well to boost your business revenue.

Business owners also need to aware of the relationship between pricing strategy and their product positioning. For example, an organisation that setting higher selling price than their competitors in the market might meet customers’ expectation on features, quality, performance, service and value where they are positioning the product as premium product compare to their competitors in the market.

In recent years, recognition on importance of pricing strategy has been increase. However, the process of developing pricing strategy and arriving at a specific price remain difficult and challenging for many organisations.

Humanology offers customised pricing strategy with transformation to value customers by putting together not only pricing model but also taking into consideration of human behaviours that will impact on pricing strategy of your organisation through the change process by addressing fundamental skills to be effectively implemented and to manage transformation in the workplace.

By
Dr. Chow Leong Choon