Improving Your Pricing Model

Macro of Priceing gun on white
© Photographer: Filipherzig | Agency: Dreamstime.com

Companies have three types of levers for pricing improvement:

1. Tactical levers – These offer quick, no-risk fixes for pricing policies and anomalies. Solutions might include tightening the terms of payment, setting strict guardrails such as minimum profitability levels, increasing prices on products or product features that have low visibility, and monetising giveaways (such as freight and service). Tactical levers can be decided upon quickly and rolled out for immediate impact.

2. Strategic changes in price levels. These involve moving prices on key items up or down – as much as 5% or more – by changing list prices or redefining the terms of trade promotion. Such actions are not to be taken lightly. To predict how customers or consumers will react, companies considering strategic price-level changes must make extensive use of analytic tools, such as conjoin analysis, price elasticity measures, profit parabolas, and in0depth customer interviews. These changes also require companies to use game theory and industry structure analysis to predict how competitors will respond. The investigation phase takes some time, but once a decision is made, implementation is fast – and so are the results.

3. Fundamental reshaping of pricing schemes. This is a step change that requires a company to creatively rethink its overall pricing structure. It could lead to overhauling the product lineup or completely rebuilding the discount structure. It might also involve pricing-model innovations such as pricing for performance, subscription pricing, or dynamic pricing, which is pegged to an external variable such as the time of the day. (In some vending machines, for e.g., the price of the products varies from the morning to the afternoon). These types of changes require managers to carefully segment their customers and opportunities. Piloting and testing are crucial before pricing schemes are rolled out; therefore, implementation takes longer for other, less complex moves.

Duranton, Izaret and Hutchinson, 2013

 

(Share this post through your social networks!)

Follow the Magazine:

https://businessleadershipmanagement.wordpress.com/subscribe-follow-the-magazine/

(After you have filled in your email address in the column at the right hand side of the screen, a confirmation email will sent to your email address. You will have to confirm it before subscription begins. Subscription is FREE)

Follow us on Twitter:

https://twitter.com/BusinessLeaders

Like us on Facebook:

https://www.facebook.com/BusinessLeadershipManagement

**As part of the Magazine’s drive to reward subscribers/followers, we will be providing subscribers/followers special access to exclusive content which will not be otherwise available to normal visitors. Please be sure to subscribe to the Magazine. Many visitors have given us positive comments that they will be bookmarking the site, but as the system is unable to capture a working email address to which the passcodes for exclusive content will be sent, they will miss out on this content. Do note that passcodes are locked to each exclusive content, not a one-for-all access, so do provide a working email address that you check regularly so as not to miss out on them!

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s