Implement a sensible pricing policy

Pricing, as an important element of the marketing mix, is decisive for sales, but also for the contribution margin.

However, price competitiveness is not primarily decided in the sales department; costs are the main price drivers. Although costs are also caused by the sales department, they are predominantly incurred in service production, i.e. in design, purchasing, manufacturing and administration. For competitive prices, it is worth taking a look at ways of optimizing costs.

Pure sales organizations such as trading companies, which do not have their own production facilities, are an exception. Here, of course, the costs are primarily in purchasing, marketing and sales. Trading companies have the greatest influence on purchasing prices. Selling prices for given products are determined by the market. The margin determines the scope of action for trading companies. The larger the margin, the more flexible the trading company can act on the market and the greater the sales success will be for the suppliers.

In order to set the price, you must first define what “the product” is. This is actually often not so easy at all. Are you selling, renting or leasing a physical product? Are you granting access to a virtual service or financial service? Is each unit of use a product or do you provide permanent access (against payment of a flat rate)?

Only now can realistic prices be set for these services.

Pricing also doesn’t end with setting a product price. Think about discount scale prices, rebate systems, surcharges for extras and service, price differentiation for variants, for different access times and locations. There are also opportunities for special prices and discounts for market launches, special occasions, periods of low capacity utilization, etc.

To be successful in multi-level sales, trade margins must be fairly distributed throughout the sales channel. If resellers or sales agents earn too little, sales success will fail to materialize. Establishing realistic and fair margins is important. If you want to set discounts on list prices across multiple trade levels, this application will help.

Pricing is, however, not enough. Prices must also be communicated. In fact, the pricing options are shaped by the communication of customer value. There is therefore a dependency between pricing and price communication. Seek to create benefit and communicate this benefit in your Public Relations. Both pricing and price communication must be considered together.

In price communication, you have the opportunity to set an “anchor” that makes the price offered seem justifiable.

Smart pizzerias offer some varieties of pizza that are priced well above the target price. This makes the other varieties seem justifiably priced and they are ordered without any bad feeling.

Buyers and shoppers want to save money. Therefore, they are more inclined to accept an offer where they get a discount than a basic offer with mark-ups, even if the numerical price is the same. Psychology plays a major role.

Example: It is worth considering whether a furniture retailer that offers its service including delivery and assembly and offers a discount if the delivery and assembly services are not used will be more successful than another that only prices the furniture and offers the delivery and assembly services at a premium.

Example: A manufacturer of precision machined plastic components for the mechanical engineering industry, who knows that their products are special parts on which the reliable operation of their customers’ machines depends to a large extent, will not define their pricing according to a cost-plus calculation, but rather benefit-oriented. They will sound out their customers’ willingness to pay.

If you want to enter a mass market with a commodity product, you must offer your product at competitive prices from the very beginning. You must already “anticipate” the scaling in pricing that is yet to be implemented, otherwise you will not gain a foothold in the market.

The same applies to proprietary items that require up-front inputs, such as building tools. In such cases, too, you must calculate with a target quantity from the very beginning and make advance payments with financing. We are not talking about contract manufacturing here.

This requires sufficient capital strength. If you can explain your business project in an appealing way in a professional business plan, you can obtain external financing for this preliminary work.


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