What are some of the key pricing objectives that you consider when setting your pricing strategy?

For some reason most companies rely on cost-based pricing. And for a good reason. It's ideal for markets with low differentiation, low price sensitivity, and transparent costs, it's less about what consumers value and more about covering expenses. Despite the rise of value-based pricing, many companies still opt for cost-based pricing. A prime example is Walmart. Their mastery in minimizing costs through efficient supply chains and bulk purchasing allows them to maintain low margins while covering costs. This approach has not only ensured Walmart's profitability but also established its dominance in the budget retail sector, proving that cost-based pricing can be successful in the right market conditions.

Cost-based pricing is the most common pricing strategy, focusing on three key aspects: time needed, cost incurred, and results produced. I'll share an experience from interacting with a factory owner in Shenzhen, China. When presenting an AI-based defect detection tool filters out defective products in the manufacturing process without the need for manual intervention, potential customers focus on: 1. Results: an accuracy of over 95% 2. Cost: willing to pay the equivalent of 3 quality inspectors' salaries for two years if it means the device could replace these positions, allowing for a return on investment within two years. Remember: Pricing from the customer's perspective is the most convincing.

A precifica??o baseada em custos é essencial para garantir que as empresas cubram suas despesas e obtenham lucro. Embora seja adequada para mercados com pouca diferencia??o e baixa sensibilidade ao pre?o, n?o considera o valor percebido pelos clientes nem os pre?os dos concorrentes. Para se manter competitiva, é importante complementar essa estratégia com análises de valor e dinamica de mercado.

Cost-based pricing can act as a safety net in stable markets by guaranteeing profitability through a clear margin over expenses. However, in competitive or highly differentiated markets, relying solely on this method might limit growth and customer engagement. For example, a company using cost-based pricing for a unique tech product might miss the chance to capture higher value through premium pricing, as seen with early adopters of innovative gadgets who are willing to pay a premium for the latest technology.

Value based pricing is hardest to do but the process forces to find additional ways to add value to the customers. Sometimes we have to educate the customers on the value the product brings to improve their willingness to pay and its critical how much of the value gets converted to price.

Very valuable technique that is customer-focused and maximizes revenue and margin when done correctly. Requires extensive knowledge of the customer's needs and your ability to deliver a valuable solution.

Pure VB pricing is rare and frankly if you can do it life is easy and pricing is not your biggest problem. Often a combination of CB/VB/MB pricing will be your bread and butter. Meaning: find out your range of margins (CB), find out your customers WTP and value loaded effects on pricing (VB), and bench and measure what the market can stand (MB), then decide if you want to go for volume or value short and long term and then set your pricing. When problems are complex, the solution has to be multi-faceted, hypothesis driven, and data heavy. Key to become more VB priced is to load your product/service with value outside of the core offering, but still so closely adjecent customers value the value load.

Value-based pricing is the art of setting prices that customers are willing to pay based on the perceived value of your software, not just the cost to make it. This approach means deeply understanding your customers' needs and how your solution makes a difference in their lives or businesses. It's a strategy I've lived by in the start up space as we grew the company; it places the spotlight on the product's benefits rather than its features, aligning your pricing with the value delivered. This can foster customer loyalty and justify premium pricing, driving sustainable growth for the business.

In the recent project on value-based pricing approach, we shifted to a value-based approach from cost-based by customer segmentation, their value identification, quantifying the value and based on that setting the price itself. This approach in our B2B business allowed us to capture a fairer share of the value we create for our customers, leading to stronger business relationships and higher profits.

Competition based pricing may be the second most prevalent pricing method (right behind cost based). It's really an acknowledgment though, that however differentiated the brochure makes your product out to be, in reality its value in customers' mind is anchored to competition. E.g. Wendy's perhaps tracks McDonald's burger prices much more obsessively than 5 Guys does. In such contexts the quality of execution often separates the profitable from the unprofitable. Arguably, the main task of pricing teams in such contexts would be to keep the org firmly grounded in reality of how much value customers put on product differentiation

A very dynamic pricing model that requires constant collection of competitor information and analysis of this material. As you are attempting to counter recent competitor changes in pricing, your competitors are doing the same thing, meaning competitive intelligence becomes obsolete quickly.

Em mercados altamente similares, como varejo alimentar por exemplo, a estratégia de acompanhar a concorrência nos produtos corretos fará a sua percep??o de pre?os pelo cliente melhorar. é preciso ser assertivo na escolha dos produtos e da concorrência. Saber o que acompanhar e aonde é a chave assim como saber se você exerce o papel de price maker ou price follower também.

Muitas vezes mal compreendido esse método n?o diz respeito a copiar os pre?os dos concorrentes, mas sim a: 1o Entender quem realmente s?o seus concorrentes; 2o Monitorar pre?os desse mercado; 3o Comparar esses pre?os com o posicionamento que sua empresa tem definida na estratégia. N?o se trata de ser o mais barato sempre e sim de estar adequado a estratégia. Necessária ado??o da tecnologia para pesquisa regular do mercado e análise n?o somente de pre?os, mas também da estratégia dos concorrentes através das pesquisas.

A precifica??o baseada na concorrência é crucial para manter a competitividade em mercados dinamicos. Essa abordagem envolve definir pre?os com base nos valores praticados pelos concorrentes, ajudando a posicionar produtos de maneira atraente para os consumidores. Por exemplo, em um mercado de eletr?nicos, ajustar os pre?os de acordo com os concorrentes pode ser decisivo para atrair clientes que comparam op??es antes de comprar.

Penetration pricing sets prices low to attract many customers and quickly gain market share. This method helps build a loyal customer base, generate word-of-mouth, and achieve economies of scale. It's effective in markets with high demand potential, low entry barriers, and strong competition.

Un gran ejemplo de como tener precios de penetración logra un gran resultado son los hard discounts, poco a poco son los formatos que más han ganado penetración de mercado dado que llegan directamente al consumidor final

As outlined the context matters in terms of objectives pursued in each scenario. As a pricing professional, your pricing goals are clear: maximize revenue and profits, attract new customers, and keep current ones happy. Adjust prices to match customer perceptions, beat the competition, and encourage product use. Make sure your prices reflect your value, set the company up for long-term success and the pursued goals adhere to the broader corporate and product goals

A classic example of penetration pricing is Reliance Jio. The telecommunication industry in India is highly oligopolistic. In order to penetrate into such market - Jio offered free services with no charges / fees for around 9 months until the users got used to / adapted to the jio platform. Jio incurred and borne huge losses to gain the market share from its competitors. However, it succeeded and currently has the higest market share in the telecommunications industry in India. Additionally, using the customer base created - Jio cross sold its products / services such as wifi, ott platforms, set-top boxes, etc.

All the big labels starting from Gucci, Loius Vitton, Porche, Lamberghini, etc have adapted skimming pricing. The businesses right from clothing to watch to sport shoes to sport cars, etc use skimming policy in order to attract HNI customers. The brand portrays itself as a luxury to possess, and possessing that respective label shall be an extraordinary thing to possess. Something not readily available for the ordinary.

In saturated markets, such as telco, skimming is often hard or redundant. But there are pockets, like roaming or international calls. Areas where customers can no longer choose someone else as they are already yours. Locked-in-skimmers if you so will. The meaning of this is that if the open market will not allow you to skim you need to create of find closed markets within the market, and then you can exploit this method. Once there, you can go very high in pricing, as long as you are not directly offensive compared to your competitors closed markets. In general your PnL shall not be very dependent of this pricing as it will never be on the right side of 80-20 in terms of revenues.

Skimming pricing is a strategy where you set a high price to target customers willing to pay a premium, aiming to maximize profit margins and recover R&D costs. It creates a perception of exclusivity and quality. This method is effective in markets with low demand potential, high entry barriers, and minimal competition.

Companies that choose to implement dynamic pricing typically rely on huge amounts of data analyzed by sophisticated pricing software. These systems help to automate the adjustment of prices based on relevant parameters defined by the user. The key when adopting this strategy is to explore and analyze what parameters/factors are relevant for your industry/market. The possibilities are endless if you have the flexibility in the system to set different parameters and to be able to adjust them periodically. In my experience within the car rental industry, pricing adjustments were made considering factors such as fleet availability, lead time, seasonality, competitor′s positioning and many other varying factors.

Dynamic pricing has been a game-changer, leveraging real-time data and market conditions to optimize prices continuously. This agility has enabled us to respond swiftly to market fluctuations, maximizing revenue without alienating our customer base. Integrating these diverse pricing objectives has been crucial in balancing profitability, market share, and customer satisfaction. It has allowed us to create a sustainable growth trajectory, ensuring that we not only meet our immediate financial goals but also build a robust foundation for long-term success.

Dynamic pricing is more applicable in B2C than B2B due to distinct market characteristics. In B2C, transactions are frequent and involve diverse consumers with varying price sensitivity, allowing dynamic pricing to capitalize on real-time demand fluctuations. B2B transactions, however, are fewer and larger, with planned, longer decision-making processes and fixed budgets, making frequent price changes impractical. B2C markets are highly competitive, and consumers are accustomed to price fluctuations, while B2B customers expect stable pricing for budgeting and long-term planning.

Dynamic pricing is a flexible method where prices adjust based on market conditions like demand, supply, seasonality, or customer behaviour. It helps optimize revenue, respond to fluctuations and tailor offers. This approach works well in markets with high variability, ample data, and significant price elasticity.

*Shoppers compare online prices so easily (we’ll touch on this later) *Seasoned sellers are aware of this price transparency and the fact that they have to compete on price *Prices change frequently *Small businesses stick with the same prices for too long, can’t compete on price, seem too expensive to shoppers, and leave too much money on the table (we’ll examine why) The key is in taking an agile and data-driven approach to pricing. In other words, this dynamic approach gives you the chance to make your customers happy and improve profitability at the same time.

One other aspect to be considered, and applicable to each pricing objective considered, is time: Does your value-based price still stand in light of future enhancements/expansions planned, does your cost-based price still stand considering future productivity gains/shocks, does your competition-base price still stand in light of future competitors and their likely profile? Incorporating the time dimension to price setting will enable it to be more strategic and less tactical if that is also the strategic ambition.

Survival: In situations where a business is facing intense competition or financial difficulties, the primary objective may be to set prices that cover costs and ensure survival. Status Quo Pricing: Maintaining price stability to avoid price wars or to maintain a consistent price image in the market. This objective is often chosen to preserve customer relationships and avoid market disruption.

Opportunity cost of a unit of product or service is the amount of money at risk by not selling the product/service to other customers in future. The travel & hospitality pricing is done by computing the opportunity cost linked with each unit of inventory sold to a customer, by setting a price at or in excess to the opportunity cost of not having that unit of inventory for future high paying customers. This approach is a blend of value based pricing (how much your product is valuable for future customers), dynamic pricing (different customers pay differently for same product) & competition based pricing (give a discount now vs competition prices on lean days, vs charging a premium on high demand days). Such pricing is aka Revenue Management

I believe before opting for any of the type mentioned above, it is important to: >Have a clear understanding of the project's objectives, the company's history with the customer, and specific goals. >Focus on customer retention to ensure sustained business flow. >Analyze the company's history, competition, and current market trends to choose the most appropriate pricing strategy. >Ensure the pricing strategy benefits both parties and adheres to legal and ethical standards.

Skimming pricing sets high prices for early adopters, maximizing profit and creating exclusivity. Penetration pricing sets low prices to gain market share and build customer base. Competition-based pricing matches competitors' prices for market positioning. Dynamic pricing adjusts prices based on market conditions for optimal revenue.