Pricing strategy is one of the least respected, but most important pieces of the marketing mix.

Pricing Strategy

Price is one of the classic “4 Ps” of marketing (product, price, place, promotion). Yet in many B2B companies, marketers aren’t necessarily involved in pricing strategy.

Pricing is a complex subject – there are many factors to consider, both short- and long-term. For example, your prices need to

Reflect the value you provide versus your competitors
Consider what the market will truly pay for your offering
Enable you to reach your revenue and market share goals
Maximize your profits

When you offer a truly unique product or service with little direct competition, it can be challenging to establish your price. Put together a strong strategy and competitive analysis so you can see

What your prospects might pay for other solutions to their problems
Where your price should fall in relation to theirs

When your price, value proposition and competitive position are aligned, you’re in the best situation to maximize revenue and profits.

Key Pricing Concepts & Steps

It’s best to create your brand strategy and identify your distribution channels before you develop your pricing strategy. By doing so, you’ll ensure that your pricing reflects your value proposition and reinforces your brand; you can also minimize pricing conflicts with your channel partners.

Align your pricing strategy to your value proposition

Your price sends a strong message to your market – it needs to be consistent with the value you’re delivering.

If your value proposition is operational efficiency, then your price needs to be extremely competitive.
If your value proposition is product leadership or customer intimacy, a low price sends the wrong message. After all, if a luxury item isn’t expensive, is it really a luxury?

Understand your cost structure and profitability goals

Companies calculate these costs differently, so verify the exact calculations your company uses for

Cost of goods sold (COGS): the cost to physically produce a product or service
Gross profit: the difference between the revenue you earn on a product and the cost to physically produce it

In addition, understand how much profit the company needs to generate. You’ll be far more effective when considering discount promotions – you’ll know exactly how low you can go and still be profitable.

Analyze your competitors’ prices

Look at a wide variety of direct and indirect competitors to gauge where your price falls. If your value proposition is operational efficiency, evaluate your competitors on a regular basis to ensure that you’re continually competitive.

Determine price sensitivity

A higher price typically means lower volume. Yet you may generate more total revenue and/or profit with fewer units at the higher price; it depends on how sensitive your customers are to price fluctuations. If they’re extremely sensitive, you may be better off at a much lower price with substantially greater volume.
Estimate how sensitive your customers are to fluctuations – it will help you determine the right price and volume combination. More importantly, you can estimate how a price change can impact your revenue.