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Essential Elements of a Pricing Strategy

Posted by Jenna Guy on Aug 11, 2017 9:00:00 AM
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How to write an effective pricing strategy

A successful pricing strategy will determine the price point at which you can maximize profits on your products and services, but it can also be used to increase market share within an existing market or break into a new market. So what goes into creating an effective strategy? We have already established who is responsible for pricing and identified some key considerations for pricing enterprise and SaaS solutions. In this post we will look at what should be included in your strategy.

Regardless of whether you’re an industry veteran or you’re new to the managed print space, pricing can be very difficult to do correctly. Many of the factors that go into determining your price are difficult to quantify, such as market trends, the value of your solution and how your brand is perceived by customers. To help you structure your pricing, we put together this list of six essential elements to include in your strategy.

Your goal: What are you hoping to achieve with your pricing strategy? Without first identifying a goal, your strategy will lack the clarity and focus necessary to be effective. Start by choosing an overall objective for each product or solution you are selling – this will guide the rest of your thinking during the planning process.

Action item: Use this goal setting worksheet to identify a key objective for each product and service you offer.

Strategic alignment: The goals of your pricing strategy should be aligned with your overall business objectives to ensure that the price you set for your products and services will enable you to achieve these goals. Like a strategy without a goal, a lack of strategic alignment can mean a lack of focus.

Action item: In the ‘Relevant’ column of the goal setting worksheet, consider how your pricing objectives will help you achieve your larger strategic goals.

Fixed and variable costs: One of the key factors that will influence what price point you set for your products and services is the cost to produce them. The final number typically includes both fixed and variable costs.

Fixed costs are those that tend to remain the same regardless of production output and can include expenses like rent and facilities, advertising, insurance and office supplies. Variable costs are those that change depending on your production volume; the more you sell, the more you produce and the larger these costs potentially become. Looking at your sales volumes will help you determine how your variable costs will impact your pricing.

Action item: Use this cost of goods sold (COGS) worksheet to calculate how much it costs to produce your products and deliver your services.

Competition: Another key aspect of your pricing strategy is your competition – who are they? Where do they do business? What does their solution do well? What does your solution do better? How are they pricing their offerings? The responses to all of these questions will influence how you, in turn, price your products and services, particularly if your pricing strategy involves increasing your market share in an already saturated market.

If you don’t have a competitor profile for each of your competitors, you should consider creating one. Competitive intel can be very difficult to come across, particularly if your competitors are privately held companies that aren’t required to disclose their financial statements. It is still important to have a clear picture of who they are, though.

Action item: Using the information available to you—company websites, social media, videos, documentation—and this template, create competitor profiles for all of your major competitors. Depending on your comfort level and how much financial figures will influence your own decision-making process, you can simply leave the financial fields blank or provide estimates if you don’t have access to the numbers.

Brand: Your brand is a nebulous collection of ideas about your company and your offerings; it’s what people think when they hear your company’s name or see your company’s logo. While you may not be able to control what people think, you can certainly cultivate these ideas with a well-thought-out strategy. An important part of this strategy is price. While it may not seem like it is relevant to other marketing functions like communication, content creation or social media engagement, price has just as much of an impact on your brand and your marketing efforts.

Action item: Consider your own brand and how pricing may affect it. Brand is a fundamental part of your overall marketing strategy, so if you don’t have a documented market strategy you should consider creating one. As a starting point, here are the six essential elements of an effective marketing strategy.

Target customer base: In which industries or verticals do your customers work? Where in the world are they located? What do their businesses look like? How can your solution help them overcome obstacles they face at work? All of these are important questions to consider when you are crafting your pricing strategy because who your customers are will determine not only how they buy but their willingness to purchase, how much they will pay, the perceived value of your solution and any currency considerations that may impact these factors.

Action item: Use this worksheet to create buyer personas and clearly identify who your target customers are. Buyer personas are semi-fictional representations of your ideal customer based on a combination of research and anecdotal facts. By representing your ideal customer as a real person with real challenges, you will be able to more effectively engage with them and show them how your solution can help them.

There are a lot of ways to approach pricing, from premium pricing with a higher price point to penetration pricing with a low entry price that scales with market share. Not all of them will make sense for your business depending on the factors mentioned in this post. The best way to determine which model is most effective for your use case is to conduct a thorough pricing strategy analysis.

A pricing strategy analysis is a comparison of two or more strategies to determine which strategy or combination of strategies is most appropriate for a given product or service and the situation. Download our free eBook on How to Write an Effective Pricing Strategy Analysis for a step-by-step guide.

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Topics: MPS, Marketing, Pricing