While we all understand what a price represents few realize the impact of prices in an organization.
But pricing is not an occult science or the area of study only for post-graduates and C-level executives. Pricing is everywhere and sometimes it works against the very nature of understanding how to price your products. Why? Because many times we tend to forget the basics of pricing and go with the time-tested path of trial and error, unfortunately sometimes this can lead to two quite extreme states:
- Price solely as a function of Profit – The higher the price the better right? Hardly, while companies should strive to get the highest price possible it isn’t always clear what that should be and many times they will simply crank them up until customers complain. This seems like a logical path for many, the problem is that a customer that has been forced to complain in the form of reduced purchases is a customer that will not be likely to return. Additionally, this method teaches your customers about the one type of lever they have that you don’t want them to use.
- Price solely as a function of Cost – Huge turn down, if you only price to recover cost and make some profit you are very likely leaving money on the table. This is the approach of the unbelievable cautious, the market is in such a state that they prefer to just live by than risk customer going away at the sign of a price increase.
Read complete article here: