The 5 Most Common Errors in Pricing Strategy

There is no faster and more effective way of dooming a good product to failure, than by choosing the wrong pricing strategy.

Thursday, November 17, 2011

Companies often put great effort and investment into launching new products. However, everything can go wrong when the pricing strategy fails. Let's look at five examples that can ruin a good project, according to Ariel Baños, economist at and author of "The Secrets of Prices" (Ed. Doubleday, 2011):

1 - Low introductory prices to gain a position in the market
"First impressions count." Companies should remember this classic piece of advice. Low prices, once assimilated by customers, define a position which is difficult to reverse.

2 - Inconsistency in prices between customers
Alarm bells ring when a customer is left with the impression that they have not bought at the best current price.

3 - Prices not aligned with value
"If my product lasts twice as long as the competition’s, its price is double." This logic cannot always be applied when deciding prices.

4 - Failures in communication with the market
Companies usually defend tooth and nail the unique characteristics and quality of their product, trying to justify their prices. However, sometimes the benefits of the products are not so obvious to customers.

5 – Waiting until the last minute to decide on a price
Once investments have been made and the costs of the new product or service have been detailed, the pressure increases and the scope for prices is reduced.

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Keys to Stop Competing for Price

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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.

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