Tag Archives: pricing

Pricing: It is all about hitting the nail!

As it is said, strategy is not an exact science; there exist multiple possibilities and ways to reach the target goal post. For as long as you are moving in the right direction, you have to keep on figuring out ways to reach the goal post and do not in any way succumb to the pressure of scoring own goal (kidding :)). This holds true for strategies devised in various fields; be it war, sports, medical treatment, IT or business. Overall business strategy also encapsulates pricing strategy and there are certain areas which need to be kept in mind before deducing the final answer. It is tantamount to solving multiple equations with various variables, simultaneously. For others, it may seem just a simple answer as E=mc2 but deducing this conclusion involved playing with a list of variables. Few of the variables to be considered for deducing a meaningful price are mentioned below:

Products and services are made for generating value for customers

The ultimate purpose of any enterprise to exist is to generate value for its multiple stakeholders (not just shareholders). When products and services are formulated to deliver to customers, the ultimate aim should not be just profit making rather it should be delivering value to the customer. Say, a product which costs you $80, sold at a price of $100 should deliver value to the customer at $100+.This is cost plus pricing, an example can be an electrical component in a panel which may cost you $80 and you sell it to your customers at $100. But the true worth of that component is $100+ in the sense that if the component is not timely installed; it may result in a total shut down of the plant which may cost the customer millions of production loss.

Align product and service portfolio with market needs

Innovation is useless, if it cannot serve to enhance value for stakeholders. You have to understand the market and get a good grasp of what your target market really needs then align your portfolio of products and services with the market needs. Such analysis will assist in devising a better game plan and you can either adopt a market based pricing approach or economics driven (demand and supply based) pricing approach.

Understand your niche (target market)

To understand your niche, you need to have a good street smart mindset which would enable you to have first hand sense of the market. Based on that sense, you can develop a holistic approach for designing your product and services portfolio at an appropriate price. It is just like hitting the nail with a hammer.

Understand substitutes and competing products

If you do not have a good understanding of your competitors and substitutes, you would never be able to put yourself in your customers’ shoes. You have to think what they think and how do they evaluate different options? From my personal experience, when I was leading the launch of Busway Systems in Pakistan for Siemens; I not only had to have good understanding of our competitors in busway system but also grasped a good understanding of substitute products i.e. cables. By doing so, I was in a better position to answer the concerns of persons sitting on the other side of the table.

Hope this helps you in framing a better strategy and spotting the right opportunities.