Strategic Spotlight: How Companies Get Pricing Right

For many businesses, one of the most difficult questions to answer is: “How do we price our products and services?” So how do company leaders answer this question? Many of them start by looking at the competition to see who has been successful and at what price. This approach is a good place to begin. Building on this, what else can companies do to make sure they price their products well enough to keep their customer’s happy and continue to grow revenue?

A Closer Look at Customer Loyalty

Could putting a price on customer loyalty be the answer? According to Marco Bertini, assistant professor at London Business School, it can be a distinct advantage. The following are highlights of five principles that Mr. Bertini recently shared with Harvard Business Review (HBR) on how to price goods so customers will buy them—and stay an advocate for your brand:

Focus on relationships. See your customers as people, not wallets. Make sure your pricing is not merely transactional or customers are more likely to notice and respond accordingly by taking their business elsewhere. Positive approach: your company may consider bundling options versus charging for individual pieces.

Be proactive. Get to know your customers, to know what they want, and the behavior you want them to engage in. Next, set prices that will benefit both your customers and your company. Positive approaches: understand if your customers react more positively to a small recurring fee or to a larger one-time fee. Continue to be responsive to their customer service concerns and requests.

Be flexible. Why? Rigid pricing does not work. Since people value products differently, perfect pricing can be a moving target. The positive approach: embrace flexible pricing, as it will help your company meet changing customer needs.

Be transparent. You will build trust and goodwill if your customers understand your pricing. Positive results: the customers you gain through transparency cost less to retain, often buy more expensive products, and are more forgiving regarding mistakes.

Understand market standards. Clarify customer perceptions of what is and what is not fair regarding pricing within your industry. Positive results: when customers believe they are paying a fair price, they are likely to buy more and pay premiums.

In Mr. Bertini’s words, “Pricing is a tool that speaks loudly to customers.” One parting question: What does your pricing say about your company?

OPPORTUNITY

Identify your best- and worst-selling product and/or service within the next 10 days. Now, have a small group of your best and brightest assigned to identify what the gaps are and how the gaps can be closed within the next 30 days.