Learn here why pricing objectives are important, and what type of objectives are most relevant in today’s market.
Creating a pricing strategy is never an easy task. For both B2B and B2C markets, first be clear on what is your pricing “destination”. That should translate into clear, measurable business objectives. Think in terms of: “increase market share by 10%” or “increase customer satisfaction by 20%“. Sync the pricing destination with the overall business objectives of the company as pricing objectives need to work towards the business’s plans for the future. Of course, depending on the specific needs of your company, you can have multiple objectives or even change them along the way.
When choosing your pricing objectives, keep in mind that pricing is intertwined with the financial, sales, and marketing departments. Hence, your pricing objectives should relate to all 3 of these key aspects:
1. Profit and sales
Pricing is key to both areas and we chose to group them as they are related to financial results.
Both profit and sales at the foundation of two questions anyone would ask about a company: How much does it sell? Is it profitable?
Competition is important to price setting in any industry.
Not as a rule, but in many domains, competition drives pricing. Thus, we must include competing in the market as a key pricing objective.
Customers are the definitive target of pricing.
The customer ultimately validates pricing. Including pricing for customers as a top 3 pricing objective is only logical in this context.
The reason why you need to start with profit and sales objectives
When pricing for profit choose if you want to maximize total net profit or the margin per item. This way you should know how to go at it — for margin improvement, price increases are needed — for the total net profit, a mix of price and volumes should do. The optimal price point should be where you charge the most without losing sales or alienating customers.
Pricing for sales can be divided in two directions – new sales growth or gaining market share. It can be very useful for both targets, as lower prices would normally encourage sales.
Depending on the characteristics and specific needs of the company, either profit or sales will be more important. If you use only profit objectives, sales indicators can be used as safety checks.
Competition always needs to be considered in your pricing objectives
Pricing for competition generally revolves around ‘keeping up’ with the competitors. Even if this means to match pricing, or to go lower or higher compared to the prices offered by the competition, it is just different sides of the same coin.
One special case would be to always deliver a much higher price than your competitors. This works great for premium brands where price is also used as a signal for high quality.
And we can never forget the customers perspective
By appropriate pricing you keep your customers satisfied. Pricing should be designed to achieve maximum customer satisfaction. Hitting the right pricing target will strengthen the customer’s belief that the price they paid is fair.