Pricing Strategies for Challenging Economic Times

During challenging economic times, companies often struggle with pricing strategy. While pricing may seem simple, the strategy behind it can be very involved. Here are a few tips to consider in your pricing decisions:

• Pricing is a market consideration, not a cost consideration. While the two are certainly related, pricing needs to be based on what the market will bear for the goods or services at hand—regardless of cost. Then costs need to be reviewed to ensure that target pricing results in profitability.

• Understand your customers’ primary goals. Be clear on what the customer wants first, then set pricing and bundling decisions. For example, a customer may prefer to pay full price for a specialty coffee and get a significant discount on a muffin, instead of getting a small discount on both items.

• Consider bundling products or services together. Always bundle a low- and high-valued product together. This will create higher sales and greater profitability. Avoid bundling two high-value products together.

• Understand your value proposition. Have a clear understanding of if and how your product or service is differentiated from the competition. Be sure that the differentiation is clearly communicated to customers. Without differentiation, you will have no pricing power in the market.

• Build the customers’ perception of value. Constantly build on customer perception. The more subtle the differentiation of the product or service, the more often customers need to be reminded of the value of your product or service.

• Know where you are on the scale of "innovative-to-commoditized." Keep the pricing of your product or service ahead of the curve. If you are priced for an innovative service and your service is becoming commoditized, you will either need to shift pricing, service, or the customer’s perception to maintain revenues.

Gregg Landers Director of Growth Management CBIZ MHM San Diego