A Holistic View of a Pricing Strategy
What does taking a holistic view of your pricing strategy mean?
First, you must consider that everything you do in your company affects how you can price and, therefore, your pricing strategy.
Let's take a little mental leap and think about this in the context of jousting. Imagine we're at medieval games, and two horses face each other in a jousting match. What are the crucial factors? First, you have the horse itself; everything you do depends on the horse. So that's your product or service. The knight is your marketing – they steer the horse, make sure the horse is not going the wrong way, etc. The knight makes sure the horse gallops the fastest it possibly can within the constraints of the game. Next, the lance is the sales because it reaches the customer community as far as possible. And that's, of course, what you want your sales to do. You want to ensure that the sales reach as deep as possible into the population of potential buyers that you have. Finally, the tip of the lance is the price. All four components need to work together and be as optimized as possible for you to be as effective as possible. If one of the elements is out of place, for example, the lance is too short, then the whole thing will fail. This is why you need to take a holistic view of your pricing strategy because everything you do in your company affects the ability to price correctly.
This means that the product or service needs to have the best possible product to fit the market and be developed and sold in ways that deliver value to customers. It needs to be of the quality that customers want. Marketing needs to understand why people buy and don't buy, who they are, and market segmentation. It is also essential to understand the most effective ways to reach those market segments, particularly those with the highest willingness to pay and buy. Likewise, the company must reach out to potential buyers as effectively as possible. They need to understand, again, who the most likely buyers are, what market segments are most likely to buy, what market segments have the highest willingness to pay, and so forth. The product or service needs to be promoted in such a way as to create the highest possible closing rate. And, of course, the pricing strategy needs to be organized to minimize sales friction and maximize the company's revenue and sales volume.
Going back to holistic pricing, this is the belief that pricing doesn't live in a vacuum. Setting your products, services, marketing, etc., in stone and then deciding to work on your pricing strategy does not work. Because if your product doesn't meet the market's needs, your pricing strategy will not have much effect. This is a bottom-up pricing strategy, but you need a top-down approach – you need to start with the price and use willingness-to-pay research to establish what product will lead you to the highest sales volume and revenue. A pricing consultant can help to develop your pricing strategy needs from what your market is genuinely willing to pay, not from guesses or gut feelings. Very few companies do this, but the companies that do are the market leaders.
These companies have elevated themselves and can support higher prices than others in the market, possibly including yours, can charge. Because they understand what their customers are willing to pay and what they're willing to pay for, how they want to learn about the product or service, how they want to be sold to, and how a pricing strategy can be developed in such a way that it minimizes sales, friction and maximizes what customers are willing to pay. And that's supporting higher prices than other pricing strategies, right? Higher prices, meaning more profits, and profits drive every company.
The importance of taking a holistic view of pricing cannot be underestimated. Reflect on this for a little while. I think you'll come to the same conclusion as I have. And as those market-leading companies came to, that pricing is not something that lives in a vacuum. A pricing strategy needs to be considered in the whole context of what the company does. And what the company does should be derived from that pricing strategy, not the other way around.
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