You're setting your pricing strategy. How can you make sure it's in line with your business goals?

Pricing strategy can make or break a client. It's one of the most important things you need to look for while creating a strategy. In my opinion, it's important to set your pricing strategy in a way that aligns with what you're offering, what your audience is expecting, and what justifies the market as well. It's not difficult, but it's not an easy decision either.

While doing cost assessment, it is crucial to understand the time frame available to recover the non-recurring costs based on the business goals. This understanding helps in apportioning the percentage of non-recurring costs into each unit being sold. If the available time frame is very short, the percentage of non-recurring costs apportioned to each unit will be high, potentially making the product less competitive. This situation typically arises when there is pressure to achieve early break-even. Therefore, balancing the recovery period with market competitiveness is essential for a sustainable pricing strategy.

The value proposition ties your pricing strategy to your business goals. It justifies your pricing and aligns it with what customers truly care about. It's what sets you apart from the competition and conveys why your product is worth its price. The key is understanding your customers’ pain points and how your offering uniquely solves them. Once you nail that, you can price based on the value you deliver, not just costs. It allows you to capture more of the value you create while retaining your appeal to consumers. A strong value proposition guides important decisions, attracts target customers, and lays the foundation for long-term profitable growth. A compelling one allows you to charge premium prices while remaining the obvious choice.

While conducting competition research, it is crucial to understand the value proposition their product is providing, along with their pricing. It may happen that the value proposition of your product or service is higher or lower compared to the competition, which explains the price difference. Additionally, it is important to understand the market share captured by your competitors. This insight helps you gauge how well their price and value proposition are accepted by the market. Knowing this can guide you in positioning your own product effectively and developing a competitive pricing strategy.

To ensure your pricing strategy aligns with your business goals, Competitive Analysis is key. As a business strategy analyst, understanding your competition helps you set prices that are competitive and reflective of market standards. Analyzing competitors' pricing structures provides insights into where your product fits and how you can position it to attract customers while meeting profit margins. For instance, I compared our prices with industry leaders to find a sweet spot that appealed to customers and supported our growth objectives. Competitive analysis ensures your pricing strategy is both strategic and aligned with your goals.

To align your pricing strategy with your business goals, start by clearly defining your objectives, such as profit maximization, market penetration, or brand positioning. Understand your costs to ensure pricing covers expenses and desired margins. Research your market and competitors to position your prices effectively. Align your pricing with the value you offer, and consider flexible and segmented pricing for different customer groups and sales channels. Regularly review and adjust your pricing based on performance metrics and evolving market conditions to ensure continuous alignment with your strategic goals.

In B2B scenarios, factors beyond price, such as complicated procurement formalities, significantly impact customer perception and purchasing decisions. Addressing these non-price factors can enhance the overall experience for your clients, leading to increased market capture at the same price.

Pricing Strategy has various dimensions in my opinion. 1. Many times pricing is based on Brand Perception. Giving an opportunity to charge a premium on some of the best products. Eg. Ferrero Roche - Each ball of the chocolatey delicacy is sold @ Rs 45/piece but it still sells. 2. At times the best brands too face a lot of resistance from the market because of saturation or existing pricing of competitors. This compels many organisations to resort to Price wars by introducing penetrative pricing or the Freemium Model. Remember the Very initial days after Jio was introduced, they succeeded in capitalising on the Penetrative pricing and now they are the price leaders. Companies with deep pockets can achieve anything with pricing.

The choice of business model is integral to your pricing strategy. The right business model can significantly enhance the appeal and effectiveness of your product or service. Innovating different business models, such as Razor and Blade or Freemium, can open new revenue streams and attract a broader customer base.

In the B2B market, the sales process is lengthy, complex, and often involves significant customization. Numerous factors influence pricing decisions. However, the most crucial step is to first understand the business goals and align the pricing strategy accordingly.

The first step would be defining the Vision of the company - it is the North Star for your business. While choosing a strategy, teams need to look out for alignment and relevance to this defined vision. The basic question - 'Is this going to take us closer to the Vision?' can be a starting point. The next step would be to completely map out the target customer profile including specifics like their socio-economics, preferences, hobbies, etc. The matrix looking into the vision, target customers' profile and value propositions will give better scope for alignment.

It is all about finding the right balance. Start by understanding your business goals, like whether you want to attract more customers or make a higher profit. Look at what your competitors or others in the same field or same product/services are charging to see what's common in the market. As there is no new business in the market it is just the way of doing work that is different. Think about your costs and make sure your prices cover them while still being appealing to customers. Sometimes you have to see the vision not the costs. Test your prices and be ready to adjust them based on customer and sales data. Others are already charging different prices for the same things but the only difference is either quality/quantity or brand.