Pricing products is an iterative sport
Winning requires technology that can optimize prices for maximum profit, and iterate on that — continuously, effortlessly. You must be able to re-analyze existing pricing strategies and test new ones in order to set or modify prices so your business is always operating at max-profit point.
Finding Middle Ground
It can be difficult figuring out how to price a product, especially today with sales rapidly shifting online and price transparency being much more “a thing”. Setting prices too high might drive away customers, while too low of a price puts you at risk of costs exceeding revenue generated.
Finding that middle ground comes only from evaluating your environment and your customers.
A great article came out last week by Forbes Contributor Rebecca Sadwick that compares pricing products to a great example by Netflix.
We Can Learn from Netflix
Rebecca points out the trail Netflix blazed in 2008 by offering 2 different subscription models. They were able to make price changes and leverage price segmentation based on constantly evolving user feedback.
Similarly, distributors and retailers must evolve their pricing strategy with continuous changes in the market, consumer preferences and even technological advancements. They can use price optimization science to get continuous feedback on existing strategies and test new ones in order to set or modify prices that will optimize their profits:
“How, when and what you charge should be based entirely on the point of view of the customer, and not the roadmapping or priorities of the internal teams.”
Price Optimization in 4 Steps
The concept of iterative or dynamic price optimization is actually quite simple. When pricing a product, think about these 4 basic steps:
- Identify the value that customers derive from the product, including how they quantify the value and when they experience it.
- Optimize pricing options for maximum customer acquisition and retention, which are vital to long-term revenue growth. Also, does the cost of a good customer experience exceed the revenue?
- Place the bet. We all know from the pandemic that pricing strategies are neither foolproof nor long-lasting. Understanding that you need to make strategic decisions fluidly and methodically, with room to test and iterate, is a winning strategy.
- Iterate. Systematically scour the market for opportunities to re-segment and adapt to changes in consumer preferences is critical to the ongoing success of a pricing strategy.