Pricing Mistakes


Posted on 16 January 2020 Catherine Chipeta


Without a solid pricing strategy in place, your product won’t be profitable. We explore 3 of the biggest pricing mistakes and show you how to avoid them.

The effectiveness of your pricing strategy is strongly affected by the amount of time and resources that you put into ensuring it accurately reflects both market and company needs. A misinformed strategy can be the difference between a profitable business versus a failing one and is crucial to sustaining profitability regardless of the quality, need, or demand for your product/service.

While identifying which pricing goals and tactics work best for your business are the first steps to creating a robust strategy, these efforts must be routinely revised to accommodate changing circumstances and surrounding factors over time or your strategy will become obsolete.

There are many common errors which can be made during the pricing process that could hinder your product’s market performance in the short and long-term.These are often overlooked due to insufficient pricing knowledge or a lack of attention given towards its execution and upkeep.

Here, we address 3 of the most frequently made pricing strategy mistakes, and how to avoid them.


Being the lowest price provider.

Customers are undoubtedly attracted to a bargain, with lengthy customer queues during promotional sales and the success of ‘no frills’ product lines reaffirming this. Recognising customers’ penchant for discounts, you might now associate low prices with high sales volumes, but this is a dangerous generalisation.

While lower prices can help differentiate your product from competitors and increase market share, this is not a one-size-fits-all approach. The best-case scenario for being the lowest price provider is to sell a product of the exact nature and value as your competitors’ products but at a cheaper price. If this is not the case, your business is at risk of failing to cover the cost of goods sold (COGS) and of diminishing customers’ perception of your product’s true value.

If you wish to introduce lower prices as part of your pricing strategy, you should calculate the COGS and perform adequate research on competitors’ product pricing first to determine the lowest profitable price and to ensure there are similar products available. Your decision to lower prices must be a well-informed one as raising them again is a much harder feat meaning this strategy is often a long-term one.

Remember:

  • Being the lowest price provider typically only works if price is the only difference between your product versus your competitors’.
  • Many customers associate lower price with lower value.
  • This is a difficult strategy to deviate from due to risks associated with raising prices.

Lowest price provider

Making short-sighted pricing decisions.

New products and prices are introduced across the market daily, prompting rapid action from businesses hoping to keep up with competitors. Re-adjusting prices abruptly to reflect market changes can have positive short-term effects but this action often overlooks sustainability and suitability, weakening its credibility as a viable strategy.

Customers are easily discouraged by fluctuating prices, losing trust in brands that do not offer consistency. You should also be aware of the inherent risks associated with making decisions solely driven by your competitors’ pricing; e.g. starting a price war, being targeted in comparative advertising, or damaging your brand reputation. Ultimately, implementing a long-term plan of attack is the most strategic response to competitors’ pricing moves. It enables you to effectively anticipate these changes and adjust your prices accordingly without unintentionally disturbing the market. Dedicating the necessary time and resources to ensure your pricing strategy remains in-sync with these factors also removes the need to introduce haphazard measures in the first place.

Periodic evaluation and adjustment of pricing to reflect the market environment is crucial to avoiding reactionary, short-sighted pricing decisions and to upholding customer satisfaction through steady and fair prices. Achieving this balance is an important element of any pricing strategy, despite your focus or goal.

Remember:

  • A knee-jerk reaction to changes in competitors’ prices can do much more harm than good.
  • A solid pricing strategy should anticipate changes to the market with feasible measures.
  • You can avoid disrupting the market by consistently assessing whether your pricing strategy suits the current market environment.

Haphazard pricing

Lacking a clear pricing strategy.

Despite its direct and significant impact on profit margins, pricing is still not a priority in a lot of companies, especially not in comparison to the high level of attention given to COGS and sales volumes. Your business needs clear direction and in-depth research to make informed pricing decisions otherwise you will likely get it wrong by missing out on vital information, such as willingness to pay, tactics for facing competitors’ prices, and strategies for long-term profit maximisation.

Establishing a robust pricing strategy takes time, resources, and money and must be regularly revised to remain effective. However, if based on accurate research and data, it can be the difference between a successful product launch or a failed one and of much greater value than its initial expense to your business.

Without a defined pricing strategy, your business may manage to stay afloat during times of high demand, but the cracks will start to show during even the slightest market fluctuation. It leaves pricing determination in the hands of guesswork, incurring significant loss to your business through over/underpricing. Conversely, by undertaking pricing optimisation – the process of fine-tuning pricing to determine the optimal amount for customers – the guesswork is removed, granting you certainty that your pricing will work.

Remember:

  • Pricing should be as much of a priority as COGS and sales volumes as it has a significant effect on profit margins.
  • Without a pricing strategy, much of the process is left to guesswork leaving your business at risk of over/underpricing.
  • Establishing a pricing strategy is a time-consuming and costly endeavour, but the long-term results will far outweigh this.

No pricing strateg


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