Pricing Strategy

Do you understand how much different customer segments are willing to pay? Do you know the cost of serving them? And finally, do you match these two to maximize your profits?

What is pricing strategy?

Pricing strategy involves managing the pricing system over the longer term, with the aim of maximizing the profitability and/or growth of an organization. A successful pricing strategy outlines the various mechanisms that improve pricing on industry, product and customer levels. This requires an integrated balance between the customers’ willingness-to-pay and the cost base of the organization. The more a company can differentiate itself, the less its pricing power is constrained by its competitors.

How good is your pricing strategy?

If pricing feels easy, there’s probably some unharvested profit potential in your business. Pricing is a large topic but there are practical ways to start improving it. You can now easily assess your pricing strategy – click below.

Pricing Strategy Audit is free of charge. You will get your score without subscription.

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The competitive situation determines the pricing alternatives that are available to an organization. For example, companies selling tens of thousands of stock keeping units (SKUs) require more advanced systems than single-service companies. Correspondingly, companies selling commodities such as electricity have fewer options than organizations that create individual services.

This table of contents illustrates what a professional pricing strategy may contain:

Executive Summary

Present State Analysis
Analysis of Customer Value and Willingness-to-pay
Analysis of Competition
Analysis of Costs
Volume vs. Price Trade-off
Governance and Capabilities
Improvement Potential

Pricing Strategy
Strategic Pricing Objectives
Pricing Must-Win Battles
Pricing Roles and Competencies

Industry-level Pricing Strategy
Strategic Shifts
Price Leadership or Followership
Price Signalling
Avoiding Price Wars
Responding to Competitive Pricing Actions
Unique Pricing Capabilities

Product-level Pricing Strategy
Available Pricing Methods
Core Products and Services
Special Products and Services
Premium and Private Label
Surcharges and Additional Pricing
Product Campaigns
Bundles

Customer-level Pricing Strategy
Segment Pricing
Discount Structures
Negotiation Levels
Targeted Campaigns
Loyalty Program
Win-Back Pricing

Capacity Pricing and Yield Management
Capacity Pricing Measures: Spill, Spoilage and Denied Access
Price Discrimination: Structure, Segmentation, Fencing
Delivery Process: Cancellations, Changes, Depositions
Capacity Management: Reservation Classes, Advance Reservations, Overbooking
Information Process: Roles, Responsibilities and KPIs
Forecasting Process: Roles, Responsibilities and KPIs
Optimization Process: Roles, Responsibilities and KPIs

Transactional Pricing
Pricing Waterfall
Quantity Discounts
Sales Channel
Payment Method
Payment Terms
Transport
Guarantees
Claims
Annual Rebates

Legal Considerations
Competition Law
Data Privacy
Other Legal Considerations

Pricing Governance
Pricing Architecture
Pricing Authority by Role
Key Performance Indicators (KPIs) by Role
Pricing Calendar

Pricing Systems
Processes
Data
Systems

Pricing Psychology
Customer Perceptions
Employee Self-Confidence

Implementation of Pricing Strategy
Key Performance Indicators (KPIs) for Strategic Pricing Objectives
Action Plans for Pricing Must-Win Battles
Pricing Budget and Allocation of Resources
Performance Management Model for Pricing
Timetable
Change Management Practices
Communications Plan