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How to Decide on the Right Pricing Strategy

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It’s no secret that pricing is one of the most important aspects of any business. After all, it is what determines how much revenue a company can generate.

However, pricing is also one of the most difficult decisions for businesses to make. There are so many different factors to consider, and oftentimes, businesses are unsure of what the right pricing strategy is for them.

This is where we come in. In this article, we will provide you with 10 tips to help you decide on the right pricing strategy for your business. We’ll cover everything from understanding your costs to considering your customer’s willingness to pay. By the end of this article, you should have a much better understanding of how to price your products and services.

Be flexible

Finally, it’s important to be flexible with your prices. Prices may need to be adjusted based on market conditions, seasonality, and other factors. Don’t be afraid to change your prices if necessary, but know how to make upward adjustments that don’t lose you business.

A good strategy when it comes to price flexibility is to have a pricing strategy that is dynamic. This means that your prices will automatically change based on certain conditions. For example, you may raise your prices when demand is high and lower your prices when demand is low.

Make sure you understand your costs

When it comes to setting prices for your products or services, one of the most important things to consider is your cost of goods sold (COGS). This includes the cost of materials, labor, and any other expenses that are directly related to producing your product or delivering your service. If you don’t have a clear understanding of your COGS, it will be difficult to set prices that allow you to make a profit. This is where good data analysis comes into play.

Consider the value of your product or service

In addition to your costs, you also need to think about the value of your product or service. What are customers willing to pay for your product or service? This is often referred to as the “perceived value.” If customers perceive your product or service to be valuable, they will be willing to pay more for it.

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Understand your competition

It’s also important to understand your competition when setting prices. What are they charging for similar products or services? If you price too high, you may lose business to your competitors. If you price too low, you may not be able to make a profit. Additionally, if you price yourself too low, you may unintentionally communicate lesser value to prospective customers.

Use pricing strategies wisely

There are a variety of pricing strategies you can use to set prices for your products or services. Some common pricing strategies include cost-plus pricing, competitive pricing, value-based pricing, and dynamic pricing. It’s important to choose the right pricing strategy for your business and products or services.

Consider discounts and promotions

Another thing to think about when setting prices is whether you’ll offer discounts or promotions. Discounts can be a great way to attract customers and boost sales. However, you need to be careful not to discount your prices too much or you may not be able to make a profit.

Think long-term

When setting prices, it’s also important to think about the long-term. What are your goals for your business? Are you trying to build a sustainable business or are you looking for a quick return on investment? Prices that are too low may not be sustainable in the long term, which is why it’s important to have a product road map that lays out your current and future pricing strategy.

Think about your target market

When setting prices, it’s also important to think about your target market. Who are you trying to reach with your pricing? What are their needs and wants? What are they willing to pay for your product or service? Consider these factors when determining your prices.

Consider your brand

Your prices should also be aligned with your brand. If you’re selling luxury goods, your prices should reflect that. If you’re selling budget-friendly goods, your prices should reflect that as well. Your prices should match the image you want to portray for your business.

Test your prices

Once you’ve decided on your pricing strategy, it’s important to test it out. See how customers react to your prices. If they’re not happy with your prices, you may need to adjust them.

A good way to run pricing tests is to use a/b testing. This is where you offer two different prices for the same product or service and see which one performs better. You can also use a/b testing to test different pricing strategies.

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Conclusion

Understanding what goes into determining your pricing model and how to make adjustments as needed is a fundamental part of running a successful business. Use these tips to help you make the right pricing decisions for your business and products or services.

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MARKETING

6 martech contract gotchas you need to be aware of

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6 martech contract gotchas you need to be aware of

Having worked at several organizations and dealt with many more vendors, I’ve seen my share of client-vendor relationships and their associated “gotchas.” 

Contracts are complex for a reason. That’s why martech practitioners are wise to lean on lawyers and buyers during the procurement process. They typically notice terms that could undoubtedly catch business stakeholders off guard.

Remember, all relationships end. It is important to look for thorny issues that can wreak havoc on future plans.

I’ve seen and heard of my share of contract gotchas. Here are some generalizations to look out for.

1. Data

So, you have a great data vendor. You use them to buy contacts and information as well as to enrich what data you’ve already got. 

When you decide to churn from the vendor, does your contract allow you to keep and use the data you’ve pulled into your CRM or other systems after the relationship ends? 

You had better check.

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2. Funds

There are many reasons why you would want to give funds in advance to a vendor. Perhaps it pays for search ads or allows your representatives to send gifts to prospective and current customers. 

When you change vendors, will they return unused funds? That may not be a big deal for small sums of money. 

Further, while annoying, processing fees aren’t unheard of. But what happens when a lot of cash is left in the system? 

You had better make sure that you can get that back.

3. Service-level agreements (SLAs)

Your business is important, and your projects are a big deal. Yet, that doesn’t necessarily mean that you’ll get a prompt response to a question or action when something wrong happens. 

That’s where SLAs come in. 

It’s how your vendor tells you they will respond to questions and issues. A higher price point typically will get a client a better SLA that requires the vendor to respond and act more quickly — and more of the time to boot (i.e., 24/7 service vs. standard business hours). 

Make sure that an SLA meets your expectations. 

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Further, remember that most of the time, you get what you pay for. So, if you want a better SLA, you may have to pay for it.


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4. Poaching

Clients and vendors alike are always looking for quality people to employ. Sometimes they find them on the other side of the client-vendor relationship. 

Are you OK with them poaching one of your team members? 

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If not, this should be discussed and put into writing during the contract negotiation phase, a renewal, or at any time if it is that important.

 I have dealt with organizations that are against anti-poaching clauses to the point that a requirement to have one is a dealbreaker. Sometimes senior leadership or board members are adamant about an individual’s freedom to work where they please — even if one of their organization’s employees departs to work for a customer or vendor. 

5. Freebies

It is not unheard of for vendors to offer their customers freebies. Perhaps they offer a smaller line item to help justify a price increase during a renewal. 

Maybe the company is developing a new product and offers it in its nascent/immature/young stage to customers as a deal sweetener or a way to collect feedback and develop champions for it. 

Will that freemium offer carry over during the next renewal? Your account executive or customer success manager may say it will and even spell that out in an email. 

Then, time goes by. People on both sides of the relationship change or forget details. Company policies change. That said, the wording in a contract or master service agreement won’t change. 

Make sure the terms of freebies or other good deals are put into legally sound writing.

Read next: 24 questions to ask ABM vendors before signing the contract

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6. Pricing factors

There are many ways vendors can price out their offerings. For instance, a data broker could charge by the contact engaged by a customer. But what exactly does that mean? 

If a customer buys a contact’s information, that makes sense as counting as one contact. 

What happens if the customer, later on, wants to enrich that contact with updated information? Does that count as a second contact credit used? 

Reasonable minds could justify the affirmative and negative to this question. So, evaluating a pricing factor or how it is measured upfront is vital to determine if that makes sense to your organization. 

Don’t let contract gotchas catch you off-guard 

The above are just a few examples of martech contract gotchas martech practitioners encounter. There is no universal way to address them. Each organization will want to address them differently. The key is to watch for them and work with your colleagues to determine what’s best in that specific situation. Just don’t get caught off-guard.


Opinions expressed in this article are those of the guest author and not necessarily MarTech. Staff authors are listed here.


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About The Author

Steve Petersen is a marketing technology manager at Zuora. He spent nearly 8.5 years at Western Governors University, holding many martech related roles with the last being marketing technology manager. Prior to WGU, he worked as a strategist at the Washington, DC digital shop The Brick Factory, where he worked closely with trade associations, non-profits, major brands, and advocacy campaigns. Petersen holds a Master of Information Management from the University of Maryland and a Bachelor of Arts in International Relations from Brigham Young University. He’s also a Certified ScrumMaster. Petersen lives in the Salt Lake City, UT area.

Petersen represents his own views, not those of his current or former employers.

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