Aspects to consider in pricing management

Aspects to consider in pricing management

Pricing management needs to take into consideration your go-to-market strategy and purpose. Think of your pricing management approach in terms of your:

  • Pricing Model (how y
  • our pricing will be presented)
  • Costs
  • Go-to-market strategy
  • Discounting strategy/limit

Your model and strategy will need to be flexible enough to adapt to new pieces of information as it happens and when it happens. First off, be clear on your growth objectives and how much of this pricing strategy will contribute to it.

investment case

Pricing management is about aligning the value you provide to a monetary amount that a prospect that needs your product/service is willing to pay within the market conditions they find themselves in.

This means the price you set needs to be Less than or Equal to the amount your prospect/target market is willing to pay, to make their problem/pain disappear.

When designing or changing your pricing model or strategy, consider the following aspects:

Customers and market conditions

  • Who they are and what they need (you may use tiered pricing to different service needs, e.g. small, medium, large)
  • The seriousness of the pain they are experiencing. Do they need to pay that now, or can they delay that purchase? How can you help them make that decision faster and with greater ease?

Clarify how paying for your product/service will help your prospects:

  • Do more with less
  • Gain more customers revenue

For you, this means that you need to identify the KPI that your product or service will improve? If you know the cost per unit to do a current piece of work, then you can quickly build an ROI case that goes, “you spend this, and you save/gain this….”

pricing strategy

Market penetration

What is your pricing strategy bias:

  • Sell at cost
  • Sell with a markup/margin application (e.g. +15%)
  • Sell at a loss

Using an example, Playstation / XBOX units are notorious for being sold below their cost price (meaning they are sold at a loss). The vendor’s strategy relies on making up for this loss through the profitability of the games it will sell.

Competitive landscape

Determine what their alternatives are:

  • What alternative products/services are available as an alternative to your products
  • How easy are they to acquire or use
  • How meaningful or valuable are they to your prospects/target market
  • What are your unique selling points

Partnership contexts

Determine whether you are selling direct or sharing some revenue with others, e.g. channel:

  • Affiliate models
  • will you revenue share with others
  • etc.

Remember your basic and indirect costs.

Remember that your pricing management needs to consider the DIRECT costs you need to make the product and the INDIRECT costs you need to ship, maintain, and keep relevant in the market.

  • Marketing
  • Operations
  • Sundries like stationery, paper
  • Computing equipment (leased/bought)
  • Software to run your business
  • Services to maintain your business, e.g. accounting, government reporting
  • Support operations (chat/email/phone etc etc)
  • HR
  • etc.

A good rule of thumb is to consider the MAXIMUM price your customers can transact without escalating for approval. E.g. if your product is aimed towards managers, keep your transaction cost < 500 USD as they can transact without further support or approval cycles.

Your pricing strategy will determine how fast you will grow, how attractive you will be to your prospects and how easy it is to get more business.

This post and the information presented in newsletter, events and website content are intended for informational and entertainment purposes only. The views expressed herein are of the author alone and is not a recommendation of an investment strategy or to buy or sell any security, digital asset (including cryptocurrency) in any account. The content is also not a research report and is not intended to serve as the basis for any investment decision. While certain information contained herein has been obtained from sources believed to be reliable, neither the author nor any of his employers or their affiliates have independently verified this information, and its accuracy and completeness cannot be guaranteed. The content is not legal advice. Any third-party information provided therein does not reflect the views of andremuscat.com. Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, timeliness or completeness of this information. The author and all employers and their affiliated persons assume no liability for this information and no obligation to update the information or analysis contained herein in the future.

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