Pricing Strategy: What NOT to say

"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.

Friday, February 12, 2021

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.

Details of the phrases that should be avoided:

1. "My proposal is cheaper and better than my competitors"
This is unnecessary. We must agree: either we are the cheapest, and aim to make money by being the low-cost option for customers, or we decide to differentiate ourselves by offering better alternatives than our competitors. One or the other, it's as simple as that. The two things at the same time result in a real hell: the low prices of low-cost and the high costs of differentiated proposals.

2. "My prices are very transparent: I charge all my customers the same"
Surely our prices will be very transparent if we do this, what I have no doubt is that we will be leaving a lot of money on the table. It is impossible for all customers to value our proposal in the same way, so prices should follow this different valuation. Segmenting, i.e. charging different prices for the same proposal, is perfectly ethical, and allows us to reach each customer with the right price. If you have any doubts, try quoting an airline ticket and then let me know.

3. "Let's lower prices to win customers and then start raising them"
Lowering prices will allow us to reach more customers quickly. I wouldn't even argue with that. But how many of those customers will we be able to retain when we need to raise prices to regain profitability? In a short time, our business will be filled with price shoppers, the most difficult to retain. These new customers will not hesitate to flee as soon as the deep discounts run out, or when our competitors decide to respond with even lower prices. Price competition is one of the most difficult scenarios to escape from.  The best recommendation is to avoid this type of temptation.

4. "Cost Determines My Selling Price"
The cart should not push the horse. Why base our price on an aspect that is only relevant to us, such as costs, instead of thinking about customer value and the competitive situation? Determining the selling price will allow us to know what level of costs the company can incur in order to profitably sell its proposal. Let's first determine the price and then the costs, not the other way around. Our entire proposal (the technical solution, investments and resources employed) should be subordinated to the prices we identify that we can charge.

5. "Customers buy mainly based on price"
We are not Apple, nor Coca Cola, therefore, if we do not offer low prices, customers will never choose us. It is a mistake to think that, in any market, "the vast majority" of customers only decide on price. If it happens to us that our customers only look at the price at the time of purchase, we should ask ourselves if we are really offering a solution different from the rest. Differentiating ourselves, not only by the product offered, but also by the attributes that are part of our "extended proposal" such as customer service, availability, support, proximity, compliance with hygiene and safety standards, are excellent alternatives to stop depending on price as the main sales argument.



More on this topic

How to Know if You Can Raise Prices Successfully?

June 2021

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.

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.

Price Management and Proposal Value

April 2021

Deploying all the analysis capacity to identify and value the differentials of the proposals, so that the customer is aware of the additional value of the products or services they will buy, is key to sell at higher prices.

Ariel Baños, founder of Fijaciondeprecios.com, exemplifies one of the cases in which strategies to sell at higher prices can be applied and explains the factors that influence this type of scenarios.

Keys to Stop Competing for Price

April 2019

Identifying a segment that values the differentials of the product or service and charging a price aligned with the company's strategy are essential to avoid competing with the lowest prices in the market.

Ariel Baños, specialist in price management and founder of Fijaciondeprecios.com, explains how through the implementation of an appropriate strategy, it is possible to compete in a market where there are suppliers who charge derisory prices.

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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