Pricing Strategy to Maximise Sustainable Profits
Your Pricing Strategy to Maximise Sustainable Profits will have a major impact on your profitability.
In many businesses, Product pricing is the biggest opportunity available to optimise your profitability. A comprehensive Real-Life Study (Hinterhuber 2004) examined the effect of implementing a 5% Value-based price increases on a sample of Fortune 500 companies.
It found that typically a five percent increase in selling price, increased operating profit by an average of 22 percent – far more than any other tool available to management.
For most companies, having an effective pricing strategy is undoubtedly the most beneficial way to increase profit compared to any other tool available to operational management.
There are three broad pricing strategies, commonly known as the” 3 C’s of pricing”, used to define the product pricing process:
- cost-plus,
- competitor-based, and
- customer value-based.
Whilst there is general agreement that Customer Value Based pricing is conceptually likely to achieve the highest level of profitability, not all businesses are able to apply value-based pricing and the complexity and the timescale for implementation is higher in B2B than B2C,
Each of the 3 pricing strategies has its place in business. But you must understand that your customers care about value – and nothing else
Value-based pricing means setting a price your customers will be willing to pay based on their perceived value to them of your product or service – not on the cost of providing it.
Can you connect with your customers in a way that goes beyond mere products? If you can, you will be able to price your products higher than any of your competitors that can’t.
Simplistically, you need to set a price that’s high enough to make you a decent profit, but low enough to entice the customer.
Value Based Pricing Strategy in B2B Industrial Marketing
There are different market-specific challenges when comparing B2B and B2C transactions.
In B2B transactions companies face competition from competing suppliers.
You need to understand from the outset that it will take time to build closer relationships and a high level of trust with your biggest customers.
For B2B Companies currently using a Cost-plus pricing strategy there is an alternative, more gradual approach to moving to value-based pricing.
This is explained in detail in the Financial Control program.
Value Based Pricing Strategy in B2C Businesses
At this stage there is no generally accepted strategy for the Customer Value Based Model in the B2C sector, but companies in some niches are creating successful strategies, which are far less structured and more intuitive than the B2B model.
Clearly, getting buy-in from individuals who are considering buying, or continuing to buy your product when you increase your price, is a completely different scenario to getting buy-in from your B2B Customers.
So far, we have explained the differences between the three broad strategies commonly known as the 3 C’s of pricing used to define the pricing process:
cost-plus,
competitor-based, and
customer value-based
And that, whilst there is general agreement that Customer value Based pricing is conceptually likely to achieve the highest level of profitability, not all businesses are able to apply value-based pricing and the complexity and timescale or implementation is higher in B2B than B2C
In our “Product & Pricing Strategy Program”, we will put forward a different approach for companies in the B2B businesses that currently use cost -plus pricing. I.e., That it may make more sense to make gradual changes over time to move from pure cost-plus pricing step-by-step to a hybrid of cost and value-based pricing.
Why Choose Me?
I invite you to read what others have said about working with me:
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In Conclusion
In my training programs I have combined the “Pricing Strategy to Maximise Sustainable Profits” and the Product Strategy to Grow Your Business as they are closely interrelated.
If you believe that the Product and Pricing Strategy Program might be right for you, you can book a free 20-30-minute discovery call with me personally, so we can explore whether it is a good fit for you and your business at this time.
Click on the button below to book an appointment in my calendar:
You will receive an email confirmation and a reminder from my booking system prior to the meeting.
Or send me a text message with a brief explanation of what you need help with, and I will call you back for an initial chat within 24 hours. My mobile number is 0418 277 137
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