Pricing strategy is one of the hottest topics in the retail world, and rightly so. Having the right strategy keeps companies competitive and profitable.
But, with so much information on price optimization floating around out there, and countless tips on increasing your profit margins, it can be difficult to know which strategies will actually help your bottom line.
Common Pricing Mistakes
Unfortunately, there are several common mistakes that companies often make when optimizing their pricing strategies that can end up hurting more than helping.
Participating in Price Wars
Having the lowest price doesn’t always mean you’ll attract the most buyers.
While pricing competitively is a strategy that can yield high rewards, cheaper prices can push customers away due to a perception of lower costs equaling lower quality. And, once you’ve established your products as “cheap,” you risk creating a negative reputation for yourself and permanently losing current and future business from customers.
On top of this, basing your pricing on competitor strategies doesn’t allow you to create a stable and optimized strategy of your own. Not all companies have the same profit margins and just because one brand can afford to price an item at a low price, doesn’t mean it’s in your best interest to match them.
Not Pricing According to Costumer Value
When consumers decide to buy a product, they place a perceived value on that product based on their own personal needs. Some products have multiple uses and can provide different benefits to different shoppers.
Pricing according to value is a customer-facing strategy and requires you to be aware of how valuable the consumer views your product. This information will help you market toward multiple different demographics and better understand the demand for your products within each of those groupings.
This type of pricing strategy can be particularly beneficial to companies that offer unique products in their market, and especially those that enhance the customer’s self-image or quality of life. Shoppers place a higher value on items they perceive to enhance their emotional and physical wellbeing.
Not Segmenting Your Target Audience
Piggybacking off of the previous common mistake, different groups within your target audience will be willing to pay higher or lower prices depending on the use of your product to their specific needs. Having product variations for different segments or even customization options can pander to a wider range of shoppers.
Audience segmentation can take many factors into account, such as age, income, or geographic location.
For example, selling heavy coats to people who live in cold climates and deal with heavy snowfall will be a lot easier than selling the same coats to people living in the tropics. The demand is higher in some locations than others, and so your pricing should be accommodating to those different areas.
Another common example of pricing segmentation is student discounts, like with Adobe’s app suite. Adobe offers a massive discount to students to market to a lower-income demographic and establish rapport that will later lead to guaranteed full-priced sales.
Bad Competitor Intel
Competitor-based pricing is an age-old strategy but relies heavily on your market insights being accurate. If your market intelligence information is incorrect or out-of-date, then your company could be making grave pricing mistakes.
A common mistake you can make when using competitor-based pricing strategies is not keeping your information current. Realistically, your price intelligence should consist of daily competitor updates to ensure your strategy is relevant and still optimized for the market.
Even if your products are bringing in substantial revenue, keeping tabs on your competitors can help you to stay on top of trends, or be prepared for new products entering the market.
Lack of Dynamic Pricing
Lastly, it’s important to remember that your pricing strategy should be constantly evolving and adapting to match the market.
The mass migration of retail into the online sphere has made it so brands have the ability to change their pricing whenever necessary to keep up with fluctuations. Matching your prices to changes in demand, availability, and other factors is crucial to financial success.
A dynamic pricing strategy makes it so your products are priced optimally at any given time. This can boost sales, increase profits, and create higher levels of demand for your products.
Whatever pricing strategy is right for your brand, it’s always helpful to know what possible issues could arise so you can do your best to stay clear of these common mistakes. Continue to monitor your price optimization and don’t be afraid to make changes for the greater good.
At the end of the day, the goal for your brand should be to find a balance between staying competitive, maximizing profits, and customer satisfaction.