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All businesses exist to make money. To maximize profit, it’s important to price products and services strategically. This means attracting customer attention and pricing at a point they’re willing to pay. Strategic pricing is important to enter into a new market, remain competitive, and sell products towards the end of their life cycle. Business owners must consider the size of their company, its industry, the typical customer, and several other individual factors when selecting the best pricing strategy. Some of the possibilities include:
- Bundled: Offering the customer a discounted price for buying several products or services at the same time.
- Competitive: Companies using this strategy select a price based on what close competitors charge for the same product or service.
- Discount: A business marks down the price for a limited time to attract buyer attention.
- Economy: This places certain products or services at a low rate to get customers in the door. Businesses typically reserve this for common or generic items.
- Market penetration: New businesses often employ the strategy of starting with a low initial price to attract a customer base and then gradually raise it as the company gets more established.
- Price skimming: A business sets an initial high price to make a quick profit and then quickly lowers it based on competitor prices.
- Psychological: A pricing structure that helps customers thinking they’re getting a great deal, such as ending in $1.99 instead of $2.00 or a buy one, get one free deal.
How Salespeople Contribute to a Successful Pricing Strategy
Compensating salespeople based on revenue alone is a plan that often backfires. It pushes them to make the sale by any means whether that’s profitable for the employer or not. However, it’s not really the salesperson’s fault when the employer offers incentives for sales that don’t align with the company’s long-term financial goals. The sales team may also have little understanding of why his or her company charges a certain price along with limited insight into negotiating with customers for the ultimate good of the company. One way to overcome these challenges is for managers to base compensation on the profit margin of the company.
It’s essential that a sales representative convey the true value of a product or service and passes that along to the customer. This helps him or her resist continuing efforts by the customer to talk down the price. The sales team should also understand the rationale behind the pricing as well as how company price points compare to those of the competition. Lastly, managers must take the time to teach their sales staff how to negotiate and resist the urge to sell low just to meet quota.
How Pricing Can Help to Prioritize Customers
Some customers spend too little money and take up too much time and resources to make them a priority. Sales leaders must regularly review accounts to determine the most profitable customers. The company can institute a customer value-based pricing system accordingly. They also need to ensure that their salespeople know who the top customers are and create an incentive strategy based on profit margin.
Regular reviews are also essential, but they should focus more on improving customer service and pricing and less on individual sales goals. Taking this approach helps sales teams change their mindset to consider what’s best for the company’s bottom line and not just their own.