One of the biggest problems that companies can face is the incorrect pricing of their products or services. After all, this can cause the brand to sell little or the profit margin to be unsustainable, even resulting in the business going bankrupt.
For this reason, it is essential to set an appropriate price for what your company offers, which allows you to attract consumers and maintain profitability. With this in mind, are you familiar with the pricing strategy? It can be interesting even for small and medium-sized businesses.
To learn what it is and how it works, continue reading. In this post, you will learn more about pricing and how to apply it in your company.
Check it out!
Why is correct pricing so important in a company?
Before learning what pricing is, it is important to understand why the right price for products and services is so important for a business. This way, it is possible to understand the importance of adopting an efficient pricing strategy.
In practice, the wrong price can result in low sales for a brand. One of the main reasons for this is attracting the target audience. If you price a product or service above what your consumer is willing to pay, the chances of selling it decrease.
Likewise, potential customers may not see value in your brand when they find prices below their purchasing power. This is because many people still link price to quality, dispensing with products and services that are much cheaper than the competition.
Furthermore, pricing incorrectly can reduce the company’s profitability, as what is left after paying all expenses may not be enough to maintain operations. In fact, it is not uncommon to find organizations that operate in the red because they do not price properly.
In this case, the sales price does not cover costs and expenses, which can lead the company to bankruptcy, as this situation becomes unsustainable in the medium and long term. Therefore, pricing correctly is one of the main pillars for the sustainability of a business.
What is pricing and how does it work?
Now that you know why pricing products and services correctly is so important, it’s time to find out what pricing is and how it works. As you can see, it is a pricing strategy that considers the customer’s perception of value and their purchasing power.
Therefore, the method requires research, strategic analysis and calculations of various aspects of the business, such as:
- value perceived by the customer;
- fixed and variable expenses and costs;
- competition analysis;
- breakeven point ;
- current market scenario;
- consumer purchasing power;
- sector of activity.
Pricing arose from the need to find a more efficient way of pricing than markup, which only considers costs, expenses and competition. In this way, the old strategy can cause problems in attracting the ideal consumer.
Despite this, many companies still continue to use markup, as it is a simpler pricing strategy compared to pricing.
What are the advantages of adopting pricing as a strategy?
Understanding what pricing is and how it works, you may wonder about the advantages of this pricing strategy. After all, if markup is more practical, why adopt another method?
In actuality, pricing is typically more effective, particularly in terms of profit margins. With it, the product or service’s value can be raised in accordance with the target market. As a result, the likelihood of the company achieving a sustainable profit margin is increased.
Furthermore, since pricing takes into account consumer purchasing power and the current market scenario, it allows you to arrive at a competitive price. This way, you can gain more space among your competitors, strengthening your brand.
Furthermore, with more appropriate prices, the company optimizes the consumer’s shopping experience and increases the conversion potential. In other words, you increase the chances of sales and, therefore, profitability.
How to adopt pricing?
In addition to knowing the advantages of pricing, you should understand how to adopt this strategy when pricing products or services. This way, you can understand whether it is worth implementing it in your company.
Next, check out the main points for implementing pricing!
Cost and expense survey
The first step to adopting pricing as a pricing strategy is to assess the company’s costs and expenses. It is necessary to understand how much the company spends to offer a product or service in order to know at what amount it starts to make a profit from sales.
By understanding this issue, it becomes possible to analyze whether there are ways to reduce costs. This way, it is possible to better price the product or service, or improve the profit margin.
Customer listening
As you have seen, the main difference in pricing is the consideration of factors that involve the customer, such as purchasing power and perception of value.Â
This way, you can analyze your ideal consumer to understand what generates value for them and how much they are willing to pay for your product or service. This increases the chances of reaching an attractive price for your target audience.
Experimentation
Finally, put your price into practice and observe how the customer behaves towards it to understand whether the pricing was appropriate or if it needs adjustments. This way, you increase the chances of reaching an amount that is interesting for the consumer and the company.
