10 Principles of Pricing

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10 Principles of Pricing


#1 Pricing has Broad Strategic Impact

Business Model• Financials• Volume

Portfolio Strategy• Product Focus• Growth Objectives

Differentiation• Leadership• Innovation

Brand• Positioning• Customer Targets

Customer


#2 Look for a Win-WinChanges in pricing structures and approaches can be a win for consumers and a win for your company.

Walmart gave a $75 gift certificate with a holiday

iPad purchase (side-stepping Apple’s pricing

restrictions). Price-sensitive consumers saw

it as a rare $75 iPad discount. Walmart got repeat visits plus the efficiency of slippage common to gift cards.


#3 Find the Right Pressure PointsEvery company should know the competitive pressure points for its products.However, it’s a risk to cater to these exclusively and make up the margin elsewhere with “bad profits.”

The airline industry has gotten very sophisticated

at competitive fare pricing. But now profits

come from fees (baggage, seats, snacks, cancellations, etc.) that

sour customers and create competitive

vulnerabilities.


#4 Pricing is BrandingPricing is one of the most impactful touchpoints that establish what your brand stands for in the hearts and minds of your customers.Customers often perceive price as an indicator of quality.

While other airlines increase ancillary fees,

Southwest uses its pricing simplicity to

establish its brand. It contrasts itself as the good guy with pricing

integrity vs. fee-grubbing competitors.


#5 Technology Can Change EverythingTechnology can often provide significant benefits to customers and open up new opportunities for companies to differentiate.

Snapshot Pricing from Progressive Insurance places a monitor in the car and offers pricing

based on driving habits. This is a benefit to good drivers and also provides

valuable data (and profitable segmentation)

to Progressive.


#6 E-Commerce is the new BaselineWeb-based ordering/pricing offers substantial benefits to the customer (convenience, better information) and the company (lower costs, bundling opportunities, etc.).

Companies like Salesforce.com steer small businesses to

online purchases. This necessitates different pricing structures and

information pathways. It also opens new sales opportunities. Live

support is a phone call away.


#7 Take a Long-Term PerspectivePrice increases always pay out in the short term. That doesn’t mean they’re right. Price reductions never pay out in the short term. That doesn’t mean their wrong.Pricing needs to be viewed as a mission-critical long-term strategy and approached with caution and discipline.

The math for pricing demand curves is

straightforward. With sufficient data, it’s not hard to theoretically maximize profits. But we should

always view our decisions in light of a long-term competitive strategy.


#8 Prices Should Make SenseYour pricing should have an inherent logic that the customer can readily understand.

Generally, the simpler the better. Starbucks is a good example. The

bigger the size, the more it costs. Contrast this to airfare pricing, which is often ineffable. (One of the few industries that has brazenly applied

absolute discretionary pricing for profit maximization.)


#9 Implementation is ImportantHow a pricing change is implemented can be as impactful as what the change actually is.

Netflix suffered substantial membership

loss when it suddenly split its pricing between online and DVD, along

with a 60% price increase. The same

thing should have been accomplished in stages, and with compensating

benefits.


#10 Be InnovativeThere are extensive opportunities for pricing innovation, which can differentiate your product.Pricing innovation can help establish market leadership.

Amazon Prime is essentially a bundled price strategy with a twist. It minimizes

customer concerns about shipping costs, drives faster deliveries and

encourages heavy users.


About The SagePoint GroupThe SagePoint Group works with leading companies to find innovative solutions to sales opportunities. Our work tends to fall into three groups:

• New Market Growth—Which direction should you go to generate growth? What adjacencies will most likely be successful and profitable?

• Product Innovation—How can we breathe renewed energy and vitality into existing products through innovation? How can we develop new products and services that will win in the marketplace?

• Customer-Driven Opportunities—What growth opportunities, e.g. marketing strategies, pricing approaches, licensing programs or business development opportunities can strengthen our company?

SagePoint Group partners are highly seasoned C-Level executives with extensive experience in general management, marketing and innovation with some of the world’s leading companies.


Contact:

Bill Aho, [email protected]

Brad McLaws, [email protected]

mailto:[email protected]

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