Want the latest news and articles delivered right to your inbox?

November 30th, 2022 | 11 min. read

4 Ways to Know That Your Pricing Strategy is Working 

Pricing is a journey rather than a destination. Your business should always be looking to tweak and fine-tune your pricing strategy as market forces are changing and evolving at a rate never experienced before in human history. From record inflation, central banks spiraling interest-rates upwards worldwide, supply chain disruptions and regional conflicts, there are simply so many high-level trends that can affect your organization’s pricing strategy to keep track of. However, knowing if your pricing strategy is working is a critical factor in maintaining your company’s profitability. That is why we have put together this article on ‘4 Ways to Know That Your Pricing Strategy is Working’. 

At Pricefx and Horvath, working together to help large-scale enterprise business organizations globally on how to grow revenues and profits is a huge part of what we do. Technology and developing the correct strategy to help companies just like yours to offer the right prices, to the right people, and at the right time can be critical to your successful business outcomes. 

In this article, we will look at why a functioning pricing strategy is critical to your business, several ways to know if your pricing strategy is working (or not), a novel example of remaining alert and aware to pivot on pricing strategy when required, and the best tools to use to set up and maintain a functioning pricing strategy. 

Why is it Important to Have a Functioning Pricing Strategy? 

Pricing is usually defined as the process you use to set the price of your product or service, and it can sometimes be difficult to determine. If you set your prices too high, your customers may find your products too expensive. However, if you set your prices too low, it could negatively affect your profits.  

It is critical to acknowledge that there is no perfect pricing strategy for any company and your strategy may change over time. 

 

Most C-Level business leaders are currently fully aware of the magnitude of changes afoot in the market. Changes in the marketplace require continual calibration and adaptability, and many businesses have changed their price list update to quarterly, monthly, weekly, or even daily (depending on the nature and sector of your business).

While one pricing strategy may be just what you need for your product during its introductory phase, that strategy may become ineffective later. Most prosperous companies are prepared to adjust their strategies over time in their pursuit of maintaining profitability and a competitive advantage.  

But the most important thing is to have a pricing strategy.  

If you don’t, you will never have the visibility, nor the capability to maintain profitability and remain competitive, constantly reevaluating, understanding that your pricing strategy is a never-ending journey following the changing needs and willingness to pay of your customers. 

‘Pay Per Laugh’ – A Novel Example of Pivoting & Remaining Agile in an Uncertain Economy 

On the topic of ‘constantly revaluating,’ a comedy club in Spain tool a novel approach to re-engaging with their fans and putting butts back on the club’s seats when economic times turned sour. 

The Spanish comedy club originally had a ‘transactional pricing model’ whereby customers could access community comedy shows by paying a fixed monthly fee and see as many stand-up shows as they wished. 

However, when the Spanish Government stepped in and introduced VAT on monthly fixed fee community theater, prices massively increased, and the crowds disappeared scared off by the higher prices. Empty seats at the comedy club became the sad ‘new normal’ despite the stand-up gigs being the same high quality as they always were. 

Of course, being engaged with their pricing strategy and re-imagining it creatively, the comedy club rebooted its success with some seriously inventive pricing strategy thinking. The comedy club placed interactive tablets around the theater in which customers could record how many times they laughed in every show and left it up to the clients to ‘pay per laugh’ (starting at 0.30 per laugh, up to a maximum of €24 per show).

___________________________________________

Learn About the Funny & Successful ‘Pay Per Laugh Pricing Strategy Here 

___________________________________________

With the new pricing strategy, the comedy club succeeded in completely turning around their profitability. Shows were soon sold out and profit returned. 

The morale of the ‘pay per laugh’ pricing story?  

Stay engaged, don’t rest on your laurels, and keep evolving, because the market will not stand still for you. 

The Top 4 Ways to Know That Your Pricing Strategy is Working 

The goal of a pricing strategy will vary between businesses, but generally, its aim is usually to identify the price that will allow you to increase your returns, while still drawing customers in. It’s a balancing act, however, when done correctly, a strategic approach to your pricing can make a significant difference to your bottom line. 

Below are the top 4 to determine if your pricing strategy is working; 

1.Your Defined Goals Are Being Met 

Usually when you define your organization’s pricing strategy, you would also define several targets to track your success, be it in terms of profit or in terms of market positioning or in terms of revenue growth (if you are pushing a new offering with a certain price model and price level in the market).  

For most businesses, tracking defined pricing Key Performance Indicators (KPIs) is now easier than ever before. Choose KPIs that make the most sense to your company’s business model, not based on what your competitors are doing. Tracking the KPI results and providing internal visibility is key to providing your sales team with the confidence to challenge your customers on price.

CTA-Learn-More-About-Key-Pricing-KPIs

Pricing software not only allows you to carry out price adjustments through dynamic pricing but can also assist in the management of those KPIs that are related to average purchase value, profit margins, and average market price etc.  

If you are meeting your defined targets, this is the first clear signal that your pricing strategy is working. 

2. You Understand Price Setting 

Calibrating your price setting is among the most crucial duties in a business and one of the critical barometers to know if your pricing strategy is working.  

Mature price setting is actually a combination of various strategies coming together.  

To estimate how much clients are willing to spend, you must first understand the market pricing. It is also essential to understand the product’s costs so you can determine how much you’ll have to pay for it. You have probably also investigated whether the product can be manufactured cheaper or faster to be offered profitably. Some great raw materials or other quality elements of production may provide additional extra value, so that your price can be raised higher than the production costs. There are always numerous options to explore, and the more pricing mature your price setting, potentially, the more avenues you will have to unearth profit opportunities that you never knew existed. 

Virtuous-Cycle-Value-Based-Pricing

3. Price Implementation

Of course, your prices must be high enough to compensate and keep the company profitable. At the same time, your prices must be reasonable to attract and convince customers to buy, but implementing your prices is another critical piece of the pricing strategy puzzle. 

A successful price strategy implementation needs the measurable goals that we discussed above that lead to a clear goal and achievable pricing model. 

Learn More About Pricing Models in Danilo’s book ‘The Pricing Model Revolution: How Pricing Will Change the Way We Sell and Buy On and Offline,’ available here.

To achieve this, take a differentiated (or often referred to as ‘segmented’) view on pricing and identify which pricing topics impact your bottom line. A frequently used method is the price waterfall, which clarifies the steps to take for profit optimization. 

Pricefx-Price-Waterfall-Simple-Example

In the beginning at least, don’t try to implement changes to your pricing across your entire product list at once, but prioritize.  

Critically evaluating each step on improvement potential and defining a phased approach will assist in a lasting and self-sufficient pricing strategy regime.  

Importantly, remember to evaluate and re-adjust your customized pricing strategy roadmap after each phase and reprioritize throughout your pricing strategy implementation journey. 

CTA-Resized-How-Do-You-Implement-A-Pricing-Strategy

4. Price Reporting 

Price reporting is all about using your existing data to make informed pricing decisions (such as knowing who your customers are and where those customers find value in your products) on the road to better profitability for your company. 

Getting a handle on your reporting and evaluating it with pricing analytics software can help you understand how price changes will affect your overall business and optimize your pricing strategy to maximize your unique set of desired business outcomes. 

Pricing analytics are the metrics and associated tools used to understand how pricing activities affect the overall business, analyze the profitability of specific price points, and optimize an organization’s pricing strategy to maximize desired outcomes such as maximized profit, revenue, volume, or whatever set of objectives you are trying to achieve.

much revenue is gained from every transaction. Watching the right data and intelligence allows you to avoid the hype and rely instead on internal data, with current and projected sales history and costs, and external data, with customer demand and channel partner data.  

Data and pricing reporting alone will not solve your all pricing problems, however, having a strong handle on the reasons behind past performance—in other words, basing your decisions on pricing analytics instead of guessing—can go a long way towards improving your future performance and another sign that your pricing strategy is working. 

Put Pricing Software in Place but Don’t Forget to Define Your Business Goals Too 

Use a quality pricing software solution to enhance the outcome of your chosen pricing strategy. Applying a pricing strategy that can keep pace with the rampant current rate of change in inflation, rising fuel prices and supply chain disruption is key, and data-informed pricing software is best way to achieve that.  

If you have an unlimited army of employees to input data 24-7 into Excel spreadsheets then it may be possible without pricing software, but who can, or even more importantly, wants to do that?  

Regardless of which pricing strategy you implement, enhancing your pricing response times is critical to avoid margin leakage. Part of that process entails providing sales teams with transparent optimal price corridors for specific quotes or transactions that can be viewed, projected, overridden, or constrained by external factors.  

To make the most of pricing software maximizing your pricing strategy, your organization will require to have a set of desired business outcomes to aim for. 

 

It is not as simple as – ‘Volia – I’m now using pricing software; all my pricing ills are now cured.’ 

 

No. 

 

You are going to need to know what your business is aiming for and if you do not have the internal resources to set a strategy, you may also require the assistance of a pricing strategy partner to do so. 

 

CTA-How-to-choose-the-right-pricing-partner-for-you

Want to Learn More About Pricing Software Partners? 

Now you know 4 ways to identify that your pricing strategy is working, and you also know that pricing software will simplify the task. However, if you don’t have the internal resources to bring it to fruition you will want to learn more about how a pricing software partner can help you to achieve your business goals faster. 

If you are a company looking for pricing software with a strong partnership focus across a range of industries and specialty areas of expertise, then you will want to learn more about the Pricefx Advantage Partner Network and one of the specialty partners, Horvath. 

On the other hand, if you are still unsure, check out the handy article below to learn more about the benefits that working with a pricing software partner provides; 

CTA-Benefits-of-Working-With-A-Software-Partner

Happy Pricing!

About the Author 

Dr. Danilo Zatta (Ph.D. – Management & Pricing – Technical University of Munich) is a leading expert in topline growth & specializes in profit improvement on the revenue side, with extensive experience in pricing. Dan has conducted hundreds of projects across sectors both in Europe and globally with strong expertise in strategies, sales and pricing excellence programs, M&A and post-merger integration, pricing processes, plus business and revenue models. He has published over 20 books on topics including corporate strategies and pricing plus many articles in various countries. His book “The Pricing Model Revolution” (Wiley 2022) is an international bestseller, translated into 12 languages. He is a regular speaker and chairman at events, forums, and leading business schools.