Pricing is the science and art of finding a balance between the interests of the buyer and seller. Only by discovering such a balance can a business simultaneously attract customers and make enough profit to grow. If such an ideal balance of interests is not achieved, the business will not be competitive:
- A high price will push away consumers and close the prospects for business growth.
- A low price will not allow you to make enough profit to launch more global projects. At best, the company will cover costs and pay a moderate salary to its employees.
To find this balance point, a business needs to master pricing management and learn how to use price management software to achieve more effective results.
What Is the Purpose of Pricing Management?
The main goal of pricing management is to achieve optimal pricing decisions. Depending on what methods and information you use, you will get different results. There is no universal mathematical formula for calculating the price of goods or services. Pricing is a complex and multifaceted process that requires considering many factors, including market dynamics, consumer sentiment, production costs, competitors’ pricing, etc.
That is why pricing management requires technical and managerial competencies. In addition to setting prices, you develop a pricing strategy. It will tell you when and how much to change prices to increase sales and attract new customers.
Thus, the purpose of pricing management is to develop a pricing policy that will maximize profits and minimize business risks. Such risks associated with pricing include the following:
- Declining demand for services or goods;
- Perception of the product as “less valuable;”
- Inability to convert new consumers, etc.
Key Tasks of Pricing Management
Developing a pricing strategy and making optimal decisions requires in-depth knowledge in a variety of areas:
- Economics
- Finance
- Law
- Business, etc.
In addition to comprehensive knowledge, pricing management specialists need certain practical skills. In particular, they should master methods of big data analysis and work with software tools that help collect information from various sources. Here are just the main tasks that must be completed to optimize the company’s pricing policy.
Defining Pricing Goals
Company leaders must decide what goals they are trying to achieve with their pricing strategy. This could be any of the following:
- Maintaining competitiveness;
- Increasing profits;
- Expanding market share;
- Attracting new customers;
- Increasing sales volume, etc.
Not all goals can be achieved simultaneously, so you should focus on the one that is essential to the company at the moment.
Collection and Analysis of Information Databases
This task is one of the most labor-intensive.
For effective pricing, you need to collect a variety of information from many data sources:
- Prices for similar products/services from competitors;
- Detailed calculations of the cost price of goods/services;
- The purchasing power of your target audience;
- Marketing research data on consumer price perception;
- Inflation rates and much more.
In addition to collecting data, you will need to standardize it to make it available for further analysis. This is not always an easy task, especially for marketing research conducted on different samples.
Defining Responsibilities Within the Team Involved in Pricing Management
To ensure that the price setting and adjustment run smoothly, you need to distribute all roles and tasks within the team:
- Collecting and analyzing information;
- Conducting marketing research;
- Financial modeling;
- Monitoring and changing prices on all electronic platforms or physical points of sale;
- Notifying partners about price adjustments, etc.
Diagnostics of the Current Pricing Processes
To assess the current state of pricing management in your company, it is necessary to conduct a comprehensive diagnostics of this process. It includes several stages:
- Interviews with key figures in the company who can influence pricing decisions. The purpose of this stage is to find out what tools or processes are missing for effective pricing according to the key decision-makers’ opinions. Perhaps someone will say that all decisions are made arbitrarily by the company’s leaders without taking into account the opinions of specialists. In this case, the scheme will need to be supplemented with elements of consultation with different departments. Others will point out the need to use advanced price management software to automate routine processes, etc.
- Analysis of interview data and comparison with effective pricing practices. At this stage, the company’s pricing process is compared with world-class benchmarks. Experts point out those discrepancies that prevent the achievement of an effective pricing policy. Perhaps the company pays too much attention to competitors’ pricing and does not conduct marketing research among the target audience. Or it relies too much on feedback from the customers and completely ignores the growth of production costs. All these discrepancies with world-class benchmarks are identified for further improvement of pricing management.
- Drawing up the roadmap for improving pricing efficiency. The final stage of diagnostics is the development of measures to optimize pricing management.
Perhaps the business should outsource the task of conducting marketing research to specialists. Possibly company’s leaders should acquire effective price management software that can fill many gaps in setting prices for goods/services. Or it may be necessary to change the pricing model as a whole so that it corresponds to the long-term goals of the company.
Conclusion: The Ideal Pricing Management Model
The price of goods/services should be adjusted depending on many factors. Businesses must ensure that their products are optimally priced not only at the time of introducing a new product or service but every day. Price revisions should be carried out regularly, taking into account the following factors:
- Opinion, preferences, and purchasing power of consumers;
- Competitors’ prices;
- Production costs;
- Equality of access for all consumers;
- Changing company goals, etc.
To integrate all these components of effective pricing within one model, use price management software. It will ideally cope with the tasks of collecting, processing, and analyzing large databases. Such IT solutions will help align your pricing management with global benchmarks. It will have a positive impact on attracting new consumers, increasing sales and the company’s profits.