Kevin’s Corner: Don’t Undervalue Pricing Pt.1

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November 10, 2014 by The Pricing Authority

PITFALLS OF PRICING

3 Pitfalls That Lead To Pricing Problems

Companies that incorporate pricing strategy early on are more likely to maximize the revenue potential and value of their products. Companies typically invest in pricing and value management strategies later in the product development lifecycle, the period just before the product launch. The trend is driven by three common issues:

1. Incremental Development Mindset

Many companies define product development by adding a new feature to an existing product. While incremental development has its place, when pricing these products, companies often default to cost-based pricing. Manufacturing cost and incremental customer value generated by the improvement cannot necessarily define optimal price.

2. Lack of Clear Value PositioningĀ 

When companies think beyond incremental product development, they often feel as though new product pricing is risky and uncertain. How should your price something that has never been sold before? Many companies rely on anecdotes, a “gut feeling” or emotion to determine price as opposed to incorporating value analytics.

3. Limited Understanding of Pricing Impact

There is a general lack of understanding around the importance of the right price for new products. Companies are comfortable making significant changes to a product’s price point after launch, once they “see how the market reacts.” This inconsistency generates confusion among customers and across the industry as to the true value of an offering. For any business price is the most powerful profit driver, and pricing mistakes can have long-lasting consequences.

What are some Pricing pitfalls or mistakes often observed or experienced within business industries?

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