Latest Pricing Insights from PriceBeam

Price segmentation involves charging different prices to different customers for a product or service that is the same or similar. It is a strategy that is very common as customers will face different prices when going to cinemas or when using vouchers in different shops. The airline industry uses price segmentation effectively all the time as customers rarely pay the same price for a particular seat.

Imagine a product costs £25, some customers may be willing to pay more while some others may find that price to be too much. Firms lose money from customers who won't purchase the product at that price as well as losing money from customers who are willing to pay more. If that company were to segment that price into three categories, £20, £25, and £30, then it can appeal to customers looking for a cheaper product as well as extracting that extra revenue from the customer segment that were willing to pay more for their product. 

Determining the next best alternative price is an important factor of value-based pricing. The next best alternatives price serves a comparison point for companies when they determine a value-based price for their new products. Firms determine the value of their product or service by comparing to the next best alternative product or service. A product is seen as valuable if it has better features and performs better than other products in the market, regardless of what the alternative product actually costs.

The end of the year remains the time where many businesses plan and execute price increases for the coming year. By how much, when and what product or market scope are then key questions. By getting market facts through price research instead of guessing what are the best areas to increase in, companies can improve the likely success of such increases tremendously. It can help a business get a firm grip on what product features are more important, what customer are willing to pay for a certain product or service, and analyse what competitors are charging for their products. 

What should the price be for your main product or service? Are customers willing to pay more than they pay today, or are new customer segments willing to pay more than existing customers? What should the price be when launching into new markets?

As a Startup or Scaleup CEO there is often thousand of things to work on, and pricing either gets overlooked or prices are set too low to be on the safe side. However, research shows that Startups and Scaleups can improve their prices between 30% and 100% without losing any significant number of customers, by applying scientific and systematic price optimization techniques. In other words make a lot more profit for themselves and for their investors.

Tariffs and trade wars are in the media almost every day at the moment. Many industries find themselves caught in an environment where they may be facing tariffs, from steel production over jeans, whisky, auto-motive, to even indirect products such as the costs impacts for Coca Cola of tariffs on the raw materials for their soda cans.

We are excited to announce three upcoming webinars in June:

• June 5th: Pricing Right Made Easy - Optimizing prices with research: learn about how to use price research when setting prices, including using different research methods. See how segmentation along customers' willingness-to-pay can drive superior profits.. 
• June 12th: Value-Based Pricing foundation done right: Conjoint Analysis: Build a solid foundation for your value-based pricing strategy by implementing regular price research using conjoint analysis. Understand value-drivers and differences in willingness-to-pay.
• June 19th: Increasing prices more efficiently with research: price increases are sometimes difficult to implement. In this webinar we look at how you can become more efficient and achieve a higher proportion of the price increase potential through price research.

You can learn more about each by clicking on the links and signing up. Once the webinars are live you will receive an email with a personal link to watch the streaming video, at your time and convenience.

Very often, an argument can be heard that "customers" will not accept any price increase. This is invariably an argument from the sales team, sales management, and sometimes even all the way up to the CEO, especially if he/she is focused on market share or e.g. growth in #customers. It is the case in startups and large corporations alike. Truth be told if Customers, as in actual customers, have a problem with the current price, then indeed it can be difficult to increase prices. In some companies it even means the overall business is in danger as it means customers don't (fully) value the products or services sold. The problem is that very often the quoted "customers" are not really all customers, or even representative customers, but rather either anecdotal and based on individual stories, or the result of exaggerated fear amongst the sales team of putting price increases on the negotiation table. 

Pricing Managers, Marketing Managers, and Sales teams often find it more difficult to get pricing right when launching a product in a new market, as opposed to pricing the same product in an existing market. In theory existing-market pricing should go through the same steps as new-market pricing and look at value drivers and willingness-to-pay, but in many situations existing markets mean there is a reference point to base the price on. Such a reference point is lacking if pricing for a new market.

Here are 7 ways for getting the price right when launching in new markets.

Value-Based Pricing strategy and implementation is frequently described along 5 C's:

• Comprehend the things the customers value: Begin differentiating from competitors by understanding customers’ needs better than the competitors do. When mastered it is much easier to differentiate and communicate value
• Create value for the customer: Define and design a differentiated offering that addresses the customers’ requirements more effectively than competitors’ solutions can.
• Capture value through effective pricing: Create prices and price structures that accurately depict the value of a product by using knowledge of the product, and its value to the customer.
• Communicate the value: Put together powerful, persuasive value propositions that distinctly communicate value to the customer. Make them recognize that you have taken the time to understand their needs, and create the value that they require
• Convince customers that your value is worth paying for: Confidence is vital in order to convince the customer that the price is right. When the customer inevitably says that the offering is too expensive, instead of immediately giving them a discount, salespeople should be confident and reply, “Well look, when you think about the value that we deliver I would actually go as far as to say not only aren’t we expensive, we’re probably not charging quite enough.”

Research on willingness-to-pay can help with several of those areas.

Willingness-to-Pay evolves over time

Most products and services experience a development in willingness-to-pay (WtP) over time.