The Future of Pricing
As businesses continue to evolve and the global market becomes more competitive, companies of all sizes are looking for ways to optimise and maximise their pricing strategies. From the pricing of products and services to the way that discounts and promotions are handled, pricing methodologies are a crucial part of any marketing and sales plan. Technology continues to advance and new trends are emerging to combat new macroeconomic conditions, and so the future of pricing methodologies is set to shift in a big way. Customers are having more say than ever in product pricing (as well as development and composition) and their input can no longer be ignored. These and other factors are putting traditional pricing methods to the test, but the question remains whether they can become - and remain - future-proof.
- Adaptability of Pricing Strategies
- The Wave of AI-Driven Processes
- Diversified Revenue Streams
- A Smarter Consumer Base
- Where Is Pricing Headed in 2023?
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Adaptability of Pricing Strategies
One of the major trends in the pricing space is the adoption of dynamic pricing, confirming the shift away from cost-plus or mark-up pricing. Rather than offering a fixed price for a product or service, dynamic pricing takes into account the current supply and demand for the product or service, as well as the specific customer’s behaviour and preferences. This enables companies to adjust their prices on the fly in response to market conditions, which can lead to increased revenues and a more competitive edge.
Being able to remain competitive is also a key consideration in understanding the move towards a more malleable pricing strategy mindset. In markets where customers are sensitive to price change, brand loyalty easily waivers or perhaps a consumer base can be segmented into smaller target groups, dynamic pricing can make a difference in the battle for market share.
Value-based pricing, a topic of one of our upcoming blogs, which implements a strategy to leverage the perceived value of a product or service to a customer, similarly underpins the shift towards a more flexible and customer-centric approach to pricing. Whilst once considered a risky exercise, the availability of time-sensitive and relevant consumer insights has since meant that it must be taken into consideration by companies which take their pricing seriously.
The Wave of AI-Driven Processes
Another important development in the pricing space is the use of artificial intelligence (AI) and machine learning to analyse customer data and recommend pricing strategies. By analysing customer behaviour, shopping patterns, purchase history, and other relevant data, AI-powered pricing engines can generate sophisticated pricing models that optimise revenue and profitability. This also allows companies to offer more personalised pricing, tailoring promotions and discounts to specific customer segments.
The push for the use of AI and machine learning is particularly noticeable within the market (and pricing) research arena in general. Traditionally a necessary, yet cumbersome and expensive part of any customer facing team, the advent of artificial intelligence has allowed costs associated to such research to be lowered dramatically and project times to be accelerated, whilst enabling teams to benefit from historic and current empirical insights from real product or service users, often at the click of a button.
Automated pricing research, in particular, continues to outstrip general market research in terms of year-on-year growth. Combined with the prevalence of remote working and globally dispersed teams, PraaS (Pricing Software As A Service) is stating its case for helping revenue growth teams across multiple sectors.
Diversified Revenue Streams
More companies are experimenting with subscription-based pricing models, which allow for a more predictable revenue stream and can create recurring customer relationships. Subscription-based models can also increase customer loyalty, since they create a sense of ownership and commitment that traditional one-time purchase models may not.
But naturally with subscription - rather than ad-hoc - customers, come different pricing considerations. From volume discounts to additional product features or benefits, the value in the price paid must be clearly visible to any customer at, if not before, the point of sale.
The balance is delicate. If priced too high, businesses risk alienating loyal customers and bringing a relationship to a premature end. At the other end of the spectrum, priced too low, then money is being left on the table and this will have a negative effect on an organisation's bottom line.
A Smarter Consumer Base
Finally, transparency of pricing is becoming increasingly important. Customers, particularly B2C consumers, are savvier than ever and have access to a wealth of information about competitors and pricing trends in general. In the same vein, many consumers consider the environmental factors of their buying decisions, which provides both challenges and opportunities for businesses in justifying their price positioning.
These phenomena have been further compounded by the current high levels of inflation being experienced across most markets in 2023. Unprecedented price rises are shifting and manoeuvring consumer behaviour at record speed, necessitating the introduction of more considered, thought-out pricing decisions.
As such, businesses need to be forthright and open about their pricing strategies, ensuring that customers understand the value they’re getting for what they pay.
Where Is Pricing Headed in 2023?
Once a one-dimensional exercise, pricing is becoming an important factor from a strategic perspective, perhaps in some cases, the most important factor.
Flexibility and adaptability are now synonymous with good pricing approach.
Technology continues to transform the business landscape at a rapid pace, and so pricing strategies are evolving in response. Consumers have more information at their fingertips, wrestling back power in broader pricing decisions. Revenue streams are diversifying, segmenting customer bases, making singular pricing approaches a thing of the past.
These will bring new opportunities and challenges for businesses of all sizes. Whether you’re an established enterprise or a start-up, it’s essential to stay up-to-date with the latest trends in order to thrive in the years to come.
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