What is and how to benefit from pricing consultancy?
- 06 December 2022
Do you always know how much to charge for your products or services? Or perhaps you operate in a very dynamic sector, like e-commerce, and you perfectly realize prices are never stable. Pricing consultancy is a service that can help you make the most of your products’ prices and maximize profit in given market conditions. Let’s have a closer look at this service.
Pricing is a beast difficult to tame; if your prices are too low, you don’t make enough money, and if they are too high, you can discourage potential customers. And that’s just the beginning! After all, there are many more elements you have to take into consideration, just to mention:
- Your operational costs
- Competitors’ prices
- Market demand
- Stability of your supply chains and product availability
- Your revenue goals, etc.
There are at least five good reasons why you should pay attention to your company’s pricing policy.
Why should you be interested in your company’s pricing?
- Pricing influences demand: Of course, there are many exceptions to this rule, but usually, low prices generate higher demand. Not always, though, lowering prices aligns with your branding or business policy.
- Pricing shows what kind of company you really are: Imagine Ferrari selling their cars for $30,000 or Burberry offering their trench coats for $500 – would you still think that these brands are super-premium and offer high-quality products? Not necessarily. Pricing reflects your company’s and brand’s identity.
- Pricing positions you among your competitors: Some companies have but one goal – to be cheaper than the competition. That’s not always a good strategy, but the fact is you can use pricing to outrun competitors and become more attractive to your customers.
- Pricing is one of the main factors affecting your company’s financial situation: If you sell your products for too low a price, you won’t make enough money, and your company’s financial stability is at risk. On the other hand, if your products are too expensive, you don’t sell enough of them and also do not make enough money. Pricing is crucial to how your company works.
- Pricing enables you to benefit from multiple sales and marketing strategies: If there is no wiggle room, you will never be able to offer special promotions or sales (e.g., because of Christmas or the end of the season), you will never be able to offer free delivery or add some freebies, etc. If you want to promote your company in many different ways, you need some flexibility in your pricing policy.
It is beyond doubt that pricing is crucial to your company’s success. And if that’s something you’re struggling with (e.g., because you’re running an online store offering thousands of products, and each requires a pricing strategy), you probably need some help. And that’s when pricing consultancy steps into the game.
What is pricing consultancy?
The way to achieve an effective and well-thought-out pricing strategy leads through analytics and data-driven decisions. Setting prices just based on your hunch is like wandering in the fog – you may eventually get somewhere, but it will take some time and many mistakes along the way. Pricing consultancy is a service that helps you gather and analyze all the available data (both coming from the market and your store) in order to create a comprehensive pricing strategy for your company. In general, the goal is to determine optimal prices that balance market demand and your profit.
It all starts with market analysis and tracking prices offered by your competitors. Today, no company is a lone island, and your prices need to reflect not only your business goals but also the current market situation. Thanks to tracking prices available in your sector, you have a solid base to set your own prices that aren’t detached from reality.
But, as we mentioned earlier, there are more things to consider. Let’s take a look at them.
The truth is, your company can have many different business goals, and selling as many products as possible doesn’t have to be one of them! Your goal can be to:
- Improve the financial condition/profitability of your company
- Build a presence in the new market
- Expand your business to a different country
- Increase AOV (average order value)
- Introduce new products and more
Your pricing strategy has to reflect your business goals. For instance, if your goal is to increase AOV in your store, a significant increase in prices is not necessarily the way to go.
You can’t promote your products to everyone; you have to specify a target audience (or audiences) to which you want to appeal. And each target audience has its specificity. For Ferrari’s target audience, paying hundreds of thousands of dollars for a car is no problem at all. For Hyundai’s target audience – that’s a different story. Your pricing policy has to take potential customers/users into account. Perhaps you should start by creating a customer persona for your brand?
As we mentioned earlier, there are always other entities around you. How many competitors do you have? Do they offer the same or just similar products? What are their prices? What do people talk about their products? It is likely that products sold for low prices struggle with quality or reliability – is that the case in your situation? Are your customers willing to pay more for a higher-quality product? Take all that into consideration.
There are many approaches to pricing. There are at least five common strategies you can employ.
Available pricing strategies
- Cost-plus strategy: It’s the most straightforward and, frankly, a bit outdated strategy. All you need to know to employ this strategy is the cost of acquiring the goods and the desired profit margin.
- Value-based pricing: In this strategy, the company estimates the value that the product has for the consumer. It’s the main factor determining the final price.
- EDLP and HL: These acronyms stand for everyday low prices and high-low pricing. They are based on keeping prices low (EDLP) or lowering them frequently to attract more customers (HL).
- Prestige pricing: This pricing strategy is almost exclusively for premium brands that don’t want to sell their products for too low prices.
- Penetration pricing: This strategy is effective when you want to introduce a new product and generate interest around it quickly.
Of course, your choice is much broader. Read more about pricing strategies in e-commerce.
However, there is one more strategy that’s surely worth your attention, and that checks all the boxes we mention in this article. What should you know about dynamic pricing?
Dynamic pricing – a worthy alternative?
Dynamic pricing is a modern approach to pricing consultancy. It’s a strategy that’s based on using intelligent algorithms that take all the available data as well as your requirements into account to come up with optimal prices for your products or services in given market conditions.
Dynamic pricing algorithms work based on the following elements:
- Your pre-defined rules (e.g., concerning profit margin, product cost, etc.)
- Market situation (the number of competitive offers, competitive prices, and product availability)
Dynamic pricing is based on a simple premise we mentioned earlier – prices are never fixed, and the market is in constant flux, especially in today’s troubled times. The best way to stay on top of things is by monitoring market changes and reacting to them accordingly.
Let’s have a look at an example showing how even a slight change in your prices can affect your market position:
In the initial situation, BuyTV’s offer is in fifth place. But when you take a second look, you see that the price difference between the fifth and the first offer is just 2 EUR! Concerning a product that costs around 500 EUR, that’s only a 0.4% difference! If BuyTV.com decides to lower their price by just 2.02 EUR, they will automatically land in the first position. And thanks to better exposure to potential customers, it is likely they will sell more products. What’s better? Selling five TVs for 501 EUR or ten for 498,98 EUR? The answer is obvious! That’s how dynamic pricing works.
With this pricing strategy, you can:
- Maintain optimal prices in your company all year round, regardless of changing market circumstances
- Attain good exposure for your offers in specific sales channels (e.g., Google Shopping or Amazon)
- Stay competitive without risking your company’s income or market positioning
Dealavo can help you with pricing consultancy
If you are still looking for the best pricing strategy for your company, we are here to help! Take a look at our services:
- Price tracking: With this service, you will understand how your competitors price their products.
- Price intelligence: It’s an in-depth service giving you better insight into your sector, competitors, and market situation. As a result, you can make well-informed decisions based on the big picture.
- Dynamic pricing: If you want to give this service a try, we have a ready-made advanced solution based on artificial intelligence.
Do you want to know more before making a decision? Take a look at this video:
And send us a request for a free, non-binding demo of our platform!