Prices: Strategy = Profitability

Selecting products with limited sales potential because of price, defining the group of clients that will be reached by the promotion and quantifying the profits that the company will receive after offering discounts are factors that must be evaluated when applying strategies of this type.

Friday, November 6, 2020

In order to avoid carrying out promotions in an intuitive way, without an integral evaluation of the action, both in terms of costs and benefits, Ariel Banos, founder of Fijaciondeprecios.com, proposes seven steps to correctly define a Profitable Promotion.

Detail of the factors to evaluate:

Step 1: Select a specific product or service of the company.
Instead of giving discounts on all the company's products, try to direct the promotion to products or services you want to promote for some specific reason. For example, those with currently limited sales potential for price reasons, items that attract customers who will later buy other things, those with excessive inventory, among other cases.

Step 2: Define which customers you want to reach with this promotion.
Remember that generalized discounts are not recommended, since not all customers define the purchase only by price.

Step 3: Establish the discount percentage to apply or another incentive to offer, such as an additional gift or extra service.
Keep in mind that if the promotion is not a price discount, you must consider the value of the gift or incentives you are giving to customers as the cost of the promotion.

Step 4: Project the sales without promotion, for the target customer segment.
I must ask myself and estimate: How much would I sell and what economic result would I obtain if I did not carry out the promotion?

Step 5: Project the sales with promotion, for the target client segment.
I must ask myself and estimate: How much would I sell and what economic result would I obtain if the promotion was actually carried out?

Step 6: Before the promotion: Compare the economic result of the projected sales with promotion versus the projected sales without promotion.
Don't be surprised if these calculations show that even if you sell more, the economic result is lower. Customer volume and traffic do not guarantee that the company will earn more.

Step 7: After the promotion: Compare the economic result of actual sales with promotion versus projected sales without promotion. This is the real economic result of the promotion.
Sales growth and economic impact should always be calculated against projected sales without promotion, for the target customer segment. The analysis is distorted if we compare the result of the promotion versus the sales in previous periods.

See full article (in Spanish).

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More on this topic

Prices: Profitable Sales During Inflation and Recession

September 2019

Avoiding hurried discounts, managing price increases according to costs and improving cash flow are some of the strategies that companies can resort to protect their profitability in contexts of inflation and recession.

Ariel Baños, a price management specialist and founder of Fijciondeprecios.com, explains four strategies for maintaining profitability when companies face scenarios of rising prices and low dynamism in economic activity.

Prices: How to Increase Profitability?

November 2018

Estimating how much customers would pay if they bought from a competitor and defining how the product offered differs from others are some of the strategies used to help increase sales profitability.

Ariel Banos, specialist in price management and founder of Fijaciondeprecios.com, explains how through the "umbrella strategy" companies can stop using discounts as the only selling tool.

Prices: Main Factor in Profitability

January 2018

Controlling and professionally establishing the price of what is sold is essential for a company in order to be successful and obtain an adequate return.

Ariel Baños, founding economist of Fijaciondeprecios.com, presents 10 essential actions to ensure proper management of the prices of what a company sells.

Keys to Setting Prices

March 2015

The ten fundamental points to consider when defining a company's pricing policy, and actions to take to determination them.

By Ariel Baños
President and founder of Fijaciondeprecios.com

1. I will use the cost discover the floor price and profitability, never to set the price.

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