How to Know if You Can Raise Prices Successfully?

If the products and services sold include aspects that are highly valued by customers and our prices have evolved below market rates, it means that it is feasible to raise marketing prices.

Thursday, June 24, 2021

Ariel Banos, founder of Fijaciondeprecios.com, describes the signs that should be analyzed by businessmen at the moment of applying an increase in the prices of the products and services marketed.

In an article published on his website, Banos details some of the main signals to which business leaders should be very attentive:

Point #1: There is superior value that we are not capturing.

  • Our proposal includes aspects that are highly valued by customers, which are not found in other alternatives in the market.
  • We are selling at a similar price to the leading competitor, when our proposition possesses significant advantages.
Recommendations:
  • Are there aspects highly valued by customers, which really differentiate us from our competitors? Then it is time that the price charged reflects it!
  • These may be technical features, additional services or emotional factors (prestige, responsibility, security, support, etc.) that are relevant to customers.
  • For these differentials to become real possibilities of charging a higher price, we must not forget to communicate them clearly. If customers are not aware of them, they will hardly agree to pay a higher price.

Point #2: Prices are lagging behind versus competitors

  • Our prices have evolved below market price indexes.
  • There is price deterioration relative to competitors targeting the same customer segment.
Recommendations:
  • Tracking sectorial price indexes or applying Price Intelligence tools, which allow us to automatically monitor prices published on the web, are interesting resources to know our positioning in relation to competitors.
  • It is important to follow the price evolution of all the companies in our market. This comparison can be a convincing argument to justify a price adjustment.

Point #3: Our customers are not price sensitive


  • A large number of customers buy the product or contract the service without even consulting the price.
  • Customers are not very sensitive to variations in our price, due to the fact that:
  • The product or service we sell has low incidence in their total budget.
  • It is difficult to substitute our proposal with alternative suppliers.
  • Possible alternatives and their prices are unknown.
Recommendations:
  • Are there clear indicators that my customers are not too affected by the price level of my product or service?
  • Identifying indicators of low price sensitivity (elasticity) on the part of customers represents an unbeatable opportunity to adjust prices with minimal losses in the quantities sold.

Point #4: Sales are growing continuously

  • We have a large backlog of orders or unattended customers on a sustained basis.
  • Constant increases in resources, infrastructure and service capacity are required to meet the growing demand.
  • We observe a quick acceptance of most of the quotations made (low rejection rate).
Recommendations:
  • Serving a larger number of customers or increasing the volumes sold requires greater efforts and investments, as well as considerable implementation time.
  • A price adjustment, on the other hand, makes it possible to quickly contain the growing demand, and thus immediately obtain a higher return on current sales, without committing additional resources.

Point #5: Prices are not defined strategically

  • The final digits of our prices are totally random or result from mark-up formulas.
  • The current price is in a "dead zone", i.e. a range within which customers do not perceive a difference. For example, it would make no sense to increase from $0.99 to $1.14 if customers consider the latter price to be in the same range as $1.49.
Recommendations
  • Do you know why all Apple prices end in 9? It is no coincidence that the most admired company in the world uses this digit in the price of all its products. The digits that make up the price, especially the final ones, have a great impact on communication. The ending in 9 or 90, for example, is often perceived by customers as an opportunity price. Therefore, price adjustments must take these "magic digits" into account.
  • We must not get stuck in a middle ground or "dead zone" with our price level. Price increases should always aim to reach the next "tipping point". When adjusting prices, small price increases sometimes fall in the middle. That is, they affect the quantities sold in a similar magnitude to a larger price adjustment. Price tests (small research) with a few key customers, as well as experiences from previous price adjustments can help to avoid "dead zones."

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More on this topic

Pricing Strategy: What NOT to say

February 2021

"The cost determines my selling price" and "let's lower prices to win customers and then start raising them" are some of the phrases that should be avoided when designing a pricing strategy.

Ariel Banos, founder of Fijaciondeprecios.com, has identified five phrases that are dangerous and that companies should avoid applying when designing their price management strategy.

Prices: How to Decommodify our Proposal?

August 2020

"If we overcome the mental barrier of commoditization, identifying and communicating those added values going beyond our basic proposal, we will have the opportunity to take our profitability to another level."

Ariel Banos, founder of Fijaciondeprecios.com explains that when a proposal is a commodity, in other words, it lacks differentiation with respect to others offered in the market, the only alternative is to align itself with the prices charged by competitors. There are no magic solutions.

When to Increase Prices?

November 2019

Convincing the sales team that the increase in the price of the product is necessary, and that they are able to convey the message to customers correctly, is essential when it comes to increasing prices when production costs rise.

Ariel Banos, specialist in price management and founder of Fijaciondeprecios.com, explains five strategies to increase product prices successfully, maintaining profitability and ensuring the viability of the company in the face of rising costs.

How to Compete Against Low Prices

February 2019

The right choice of the marketing system and the partners who will sell the product is key to compete profitably with other options with lower prices.

Ariel Baños, price management specialist and founder of Fijaciondeprecicios.com, explains how through proper marketing, it is possible to compete against the prices of companies manufacturing their products on a large scale and at lower cost, such as those made in China.

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