What is a Pricing Process?
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Pricing is not the easiest issue a business has to face.
You’ve got a new product or service - what price will you charge for it? Or your margins are too low but there’s lots of competition, so how will you raise prices?
That’s where a pricing process comes in.
For many businesses a pricing process uses one of two methods.
The first is the cost-plus approach - add up all the costs for the product or service, then add a margin on top.
The second is to research what your competitors are charging, and then choose one of three positions: if you have a superior product or service, then you might charge a premium price; if you have a cost advantage, then you might choose a lower price; or you might go the easy route and just match the average price.
But neither of these is a ‘pricing process’. What does a proper pricing process look like?
The steps of a thorough pricing process are:
Decide on your pricing philosophy (which you can apply differently to different channels, products, markets etc).
Analyse your net margins; analyse what creates value for your customers, and how that value varies between different products or between your products and your competitors’; and analyse different buying processes.
Decide on your fundamental pricing strategies.
Consider different tactical approaches to pricing, such as short-term promotions.
Finally, think about how to communicate your price.
That’s a short list, but there is a huge amount of detail behind each step. So, week by week, we’ll explore each step in more detail. If you want to talk to me about any of this, then you can find me here: https://www.david-abbott-speaker.co.uk/ or here: https://consultyorkshire.com/our-consultants/david-abbott
Photo by Bec Ritchie on Unsplash
