Through our experiences in creating successful coaching and consulting practices, we've discovered five key pricing strategies that can be used to create a strong and lucrative practice. Recently, a major breakthrough in Australian companies has been the redesign of a more sophisticated pricing structure to collect more revenues in different customer and price segments without losing volume or margin. The reason why more and more companies are choosing to redesign their pricing structures now is because markets are changing, and older, more expensive pricing structures are losing margin and limiting revenue potential because they don't offer sufficient pricing flexibility. For example, over the past 5 years, and especially since COVID, Australian companies have been experiencing intense price pressure and need more flexibility in their pricing structures.
However, many existing pricing structures are plagued by pricing errors, and the pricing plus cost logic applied to the structure is too broad and simplistic. In short, many pricing structures are packed with multiple prices for many items, and have fences or limited levels to distinguish the value of products within categories. What is a pricing structure? How to create a pricing structure? How positioning can affect the pricing structure of services? Price levels are another important way of correctly organizing the pricing structure. Price levels allow a company to request its products and prices, and even from groups of customers, with a better and better pricing structure.
Both fences and levels are important for optimization and segmentation. Without barriers or levels, prices quickly become a mess and prices are random and scattered, creating enormous complexity in pricing. For example, it's not uncommon for sales teams to be suspicious of their existing price lists and pricing structures and to “go off the list” to set the prices of invoices to customers themselves, which is also known as discrete pricing. There's a misconception that a pricing structure doesn't give sales teams the flexibility they need to negotiate prices with customers.
This isn't really the case at all. A segmented or tiered pricing structure is a great way for sales teams to charge different prices to different customers and for different amounts without overcharging or underselling an item or package. Airline pricing teams have long employed a segmented pricing structure similar to the pricing structure of hotels. A segmented pricing structure allows airlines to maximize the revenues they can earn from different customers based on capacity utilization and performance management.
The pricing structure of an industrial equipment and engineering company, on the other hand, obtains a large part of its revenues from the award of bids and tenders and from the renewal of high-value and high-volume contracts. The wholesale price structures for electricity are another interesting example of the redesign of price structures. An electricity pricing structure is generally designed around complex cost structures such as operating costs including fuels that power plants use to meet electricity demand. However, another important factor that is usually applied to the pricing structure of most electricity companies is time.
Electricity companies use a time limit on the pricing structure to encourage customers to buy during off-peak hours or when the company needs to balance or use capacity or avoid outages. Therefore, it is only a matter of time before all electricity pricing structures are highly dynamic and focused on consumer needs and values (value-based pricing). Redesigning a pricing structure for complex markets such as energy will involve complex pricing work. A segmented electricity pricing structure (such as the one described above) has a wide range of price-supply configurations, price metrics, and limits each will be appropriate to address the different reasons for the existence of value-based segments. If you're not sure how to create a pricing structure, consider appointing a price manager to help you. Developing or redesigning the pricing structure is not easy; it's a very technical job and requires a great deal of experience in pricing.
The development of the pricing structure is one of the most important pricing activities for improving profitability carried out by a world-class pricing team. Although it seems difficult to design an optimal pricing structure for services and products, it's also potentially the most rewarding aspect of pricing strategy. For companies that launch offers with differentiated benefits, you'll need a new pricing structure. In the case of companies that use a business model with changing operations and different cost structures, they must redesign their pricing structure to adapt to changes and take advantage of new revenue opportunities. Likewise, it will be impossible to create a robust pricing structure for services without proper positioning and identity. Creating a strategic framework begins by first finding the identity and challenges of your company.
There are several levels of practice to which your company can belong; it is crucial to understand this in order to properly position yourself and create an effective pricing structure. Keep in mind that these aren't clear cut; some companies may cover more than one category. However, these serve as a basis for understanding your position. In conclusion, it's vital to understand positioning when creating your pricing structure. Professional firms can take advantage of the right positioning to their advantage, allowing them to set the right price for their services.
The price you choose also helps you position your brand when you enter your target market. If you incorrectly price your services, you may run the risk of damaging your brand image; but if you price your services properly, you'll have an immediate impact by attracting your ideal audience, generating positive brand recognition and most importantly generating revenue.
A pricing strategy, on the other hand, is a model or method used to establish the best price for a product or service; it helps you choose prices that maximize profits and shareholder value taking into account consumer demand and market demand.
Successful, strategic implementation requires careful consideration of all factors involved in setting prices such as cost analysis, competitive analysis, customer segmentation analysis etc. It's important that businesses understand how their customers perceive value so they can set prices accordingly. Additionally businesses should consider how their competitors are setting their prices so they can remain competitive. Finally businesses should consider how their own costs affect their ability to set prices.
All these factors should be taken into account when creating an effective pricing structure.