Are you a new entrepreneur just trying to set up your business or you’re already established but trying to find out how to optimize your sales price? If yes, then you’re in the right place. Relax, get a bowl of popcorn, and read through. You should know as a matter of fact that your pricing strategy can make or mar your business. This is why organizations are usually at an internal war in trying to find out just the perfect price for their products or service.
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Price optimization is the process of striking the right balance point for the price of a product or service. Optimizing your product or service price takes a whole lot of time and effort, but is well worth the stress. Price optimization is said to be successful when there is a sweet balance spot between profit and value. The key is to set a price that utilizes the customer’s spending potential (that is, how they spend and when they spend) and brings profit for the business.
To maximize profitability, you need to use market and consumer data to strike a balance of price. In as much as making a guess what might mean setting yourself up for the loss, copying your competitors creates a price war. When you effectively optimize price, you’ll be able to increase customer satisfaction, increase profit, create more value and achieve greater growth heights.
To achieve price optimization, there should be pricing strategies that would help in determining how much to sell your products or services. Selecting the right price strategy as a new or existing business shows to a great extent your level of understanding of your product, customers, or market.
Three common pricing strategies include:
Competitor-Based Pricing Strategy
This is usually referred to as ineffective plagiarism. This is usually a lazy man strategy of seating back, letting competitors do the work, and copying from them. It involves looking at the prices adopted by other businesses in the same industry and adopting them. Although it is ineffective plagiarism, this strategy is a low-risk method of gauging market prices.
Cost Plus Strategy
This is the simplest strategy as it just involves calculating your production cost and adding your desired profit margin. However, this strategy is highly ineffective as it lacks a customer approach.
Value-Based Strategy
This is used to determine customers’ true willingness to pay for a product or service. Your customers do not care about your competitors or how much your production cost is. They are more concerned about the value they would get. Inasmuch as this strategy requires time and resources, its customer approach to determining price makes it the best.
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Now, here’s how to optimize price:
Layout Your Goals
The key to getting where you want is knowing where you are going. Your goals have to be clearly defined to be able to establish a suitable price for your products or services. It is these objectives that will guide your price decisions. These goals could be knocking off competition, reaching price stability, increasing market share, improving customer loyalty, etc. This will help you ask critical pricing questions.
Do A Complete Analysis
Price optimization is not a guessing game. Data collection is the pillar/backbone of price optimization. You need qualitative and quantitative data on customers, their needs, reviews, demand and supply data, market trend, etc. You also need to survey competitor data, historic sales data, operating cost, etc. This information would present you with a bigger and clearer picture of where you stand in the market.
Point Out Value Matrix
At the end of the day, everything boils down to perceived value. The value matrix helps you find out the value customers place on your product or service as well as which aspect they value the most. This helps you charge in line with created value and customer needs.
Analyze Collected Data
Now is the time to analyze all the data collected and the value matrix determined. This will help you find out what price works better for each product, what your customers are willing to pay etc.
Set And Monitor Price
When all the above have been carried out, then it’s right about the time you set your price. Once this is done, also try to continuously monitor the price to ensure that it aligns with the value provided.
Featured Image Source: Titanium Success
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