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Is It Time to Rethink Your Pricing Strategy?

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Is It Time to Rethink Your Pricing Strategy?

I was watching an episode of MasterChef last night and it was the team challenge day, the competitors were in three teams and had to bake food for a fete.

The Blue team was the first to get their food out to their stall and also the first to price their offerings, with the Red and Yellow following soon after.

All the teams had relatively similar offerings, a main meal and two baked goods.  The Blue team appeared to be the only one that had a constant stream of food going into the stall and therefore no downtime on their offerings.

Both the Red and Yellow team had times when certain dishes were unavailable.

Going back to our Economics 101 lectures, we all remember the famous Supply vs Demand graph.  Given that there were some 2000 people at this fete, demand wasn’t an issue, therefore I automatically assumed the Blue team having a constant stream of supply would have had the competition in the bag.

Low and behold, the results were revealed and both the Yellow and Red teams were safe, and the Blue made the least amount of money.

Wait, what just happened…

Then our minds wander back, thanks to the magic of television, to when the prices were first being applied and we see that the Blue team were priced at $5 for baked goods and $7 for their main meal, whilst their competitors were $12 for the main meal.

This is a perfect example on just how important Pricing is in any business.  The Blue team did a wonderful job however it is was their pricing that let them down, and specifically not checking out the competition to see that they were actually under-priced.

Pricing plays such an important role when selling products, as a consumer we tend to equate price to a good’s value, e.g. when we look at cars, we tend to put Mercedes, BMW and Audi all in one category and Holden, Ford and Mazda in another category.  Interestingly when Subaru launched in Australia sometime ago, they priced themselves as significantly lower than its German cohorts believing that they would sell more product, however the market perceived them to be at the same standard as the luxury market and it has struggled to gain the market share that it holds in Europe.

Getting the pricing right is a fine line and a mix of considerations, such as:

1. Return on Investment

You can structure the pricing in accordance with the return on investment that you are seeking, this is usually based on a percentage or if a specific figure is required, you may need to forecast sales volumes as well.

2. Consumer perceived value

A perfect example of consumer perceived value are white diamonds, not a rare commodity in this world, in fact sapphires are more rare, however due to a wonderful marketing campaign, the diamond merchants have increased the consumer perceived value of their product.

3. Competition Differentiation

Price can be determined based on the differences that one product holds over another, if you can market your product that it has an increased value over and above your competition, you may be able to justify an increased price to the consumer.

4. Market Research

Going back to the MasterChef scenario, if the Blue team had of snooped on their competition earlier in the game, they would have seen that their prices were significantly lower and have increased their revenue, and saved their butts from potential elimination.

After considering all of the above, remember that Pricing is a dynamic aspect of any business and getting that perfect price point will see sales soar.

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