Eight Steps to Testing a New Pricing Strategy
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Free Download - Lead Generation Ideas & Options By John Brennan |
1. Know your value proposition. If your pricing strategy and value proposition aren't aligned, you're contradicting yourself, confusing the market and limiting your opportunities.
2. Group your products/services into categories: Commodities, partially differentiated, substantially differentiated, custom. And remember that your opinion may be different than that of your target market - while you may view your products as "highly" differentiated, they may think "partially."
3. Evaluate your competition for each group of products. How do your prices compare to those of your competitors?
For many B2B companies, this step is easier said than done -- you're less likely to find specific pricing info for your competitors. If that's the case, you can try to "secret shop" your competitors, ask prospects for feedback or just estimate a range.
4. Talk to your sales reps. If they're very close to their prospects and customers, they may be able to provide solid estimates.
Give them a chart and ask them "If our price was X, how many incremental deals do you think you could have won (or lost)?" Provide 3-5 values for X.
5. Survey your lost prospects and customers. As in the previous step, you're trying to project the number of deals you could have won or lost at different price levels.
You can have your sales reps contact prospects and customers or you can use an independent third party or formal survey. Your goal is to find out whether they would have bought from you (or whether existing customers would buy more/less) at different price points.
6. Calculate your total estimated profit at each price point. First, calculate your total current profit at your existing price(s).
Units sold * (Price - Cost of Goods Sold) = Total current profit
Then look at your surveys and estimates and calculate the number of additional units you could sell (or lose) over the same time period.
(Existing units sold + incremental units sold) * (New price - Cost of Goods Sold) = Total projected profit
7. Test your theory. If possible, before you implement a company-wide pricing change, set up a statistically valid test to evaluate your new pricing.
8. Develop a communication plan. If you're raising prices, your sales reps and materials will need to easily overcome any objections they face. Consider giving existing prospects a window of time to buy at the current price. And if you are lowering prices, it's a great time to plan a major campaign to announce your news.
To learn how Interpersonal Development can assist with this or other marketing issues call John Brennan at 1-585-230-5765
Eight Steps to Testing a New Pricing Strategy - To learn more about this author, visit John Brennan's Website.
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