From the surface, pricing seems like it’s just about numbers. After all, prices are numbers. And as pricing practitioners we’re always trying improve revenues and margins—again more numbers.
But if you view pricing as a strategic discipline. It’s about so, so much more than numbers.
We like to define strategic pricing this way:
Strategic pricing involves proactively creating the conditions under which better and more profitable pricing outcomes are the natural result.
In order to go about creating those conditions where more profitable pricing outcomes are the natural result, you really need to understand your customers. What makes them tick? What might make them willing to pay a little bit more for products? What would make them willing to pay less?
These are complicated questions. And it’s going to take some research and analysis to answer them. We’d like to suggest five areas where gaining insight into your customers’ motivations might prove especially helpful for pricing practitioners:
1. Problems & Frustrations. What difficulties do your customers face on a regular basis? If you can solve or eliminate something that plagues them every day, that can be a powerful motivator for customers to be willing to pay more for a product. Just don’t forget that your sales and marketing materials will need to tell customers explicitly how you are solving their problems in order for you to achieve any pricing benefits.
2. Priority Needs & Values. What is most important to your customers? What are their business and personal goals? And which of those goals are most important? Are they expanding market share? Cutting costs? Launching new product lines? If you can find a way to give them what they need to meet those goals, you’ll be making progress toward achieving profitable pricing conditions.
3. Expectations & Ideals. Based on their past experiences with other vendors in your market, what do your customers think will happen? If they have high expectations, you better make sure you are meeting them. If they have low expectations, you might be able to gain extreme loyalty by dramatically exceeding those expectations.
4. Skepticism & Doubts. Customers don’t always tell you what they are thinking—especially if what they are thinking is that you are full of crap. Put yourself in their shoes and consider which of your company’s claims seem dubious. By strengthening these weak points in your arguments and directly addressing potential objections, you might be able to command higher prices.
5. Pain, Fear & Risk. Psychology tells us that people will go to great lengths to avoid pain and discomfort. In fact, they are much more strongly motivated by these negative emotions than by positive desires to gain something or do something. Products that help people avoid pain, fear, and risk are naturally worth more in the minds of customers.
As you can see, strategic pricing is as much, if not more, about understanding people than about understanding numbers. These five types of insights will give you a great start into improving pricing conditions for your company, but this list is far from exhaustive. The express guide 17 Customer Insights for More Strategic Pricing explains twelve more types of information that can help you improve pricing.
You might also want to check out the tutorial on Step-by-Step Marketing Research for Strategic Pricing. It walks you through the process of how to obtain the customer insights that are critical for strategic pricing, and it even includes an interview guide to help you get started.
17 Customer Insights for More Strategic Pricing
Having a better understanding of your buyers can help make profitable pricing outcomes the natural result. This guide reveals 17 powerful customer insights that are proven to be beneficial for creating advantageous pricing conditions.
Step-by-Step Marketing Research for Strategic Pricing
In this step-by-step tutorial, learn how to conduct marketing research---the only reliable way to gain the meaningful and actionable insights you need for effective strategic pricing.