In today’s competitive business landscape, maintaining growth is a top priority for businesses across all industries. Although growth strategies may vary, an often forgotten but nevertheless very powerful tool is pricing. Many studies have shown that it is more impactful to optimize prices rather than cut costs¹. The pricing power can unlock untapped potential and lead to increased profitability.
How can companies leverage the pricing power to drive growth?
Understand market trends
To effectively harness the pricing power, it is essential to study market dynamics. Beyond monitoring the competition and the evolution of their prices, it is important to understand customer expectations, identify value and traffic drivers. From there you can develop a first level of product segmentation. In a second step you can analyze the price sensitivity of the customer to refine this segmentation.
With this information, you will be able to develop differentiated pricing strategies by product segment and set prices that meet your customers’ expectations, optimizing your revenue generation.
Focus your pricing on the customer
Choosing a customer-centric pricing approach means emphasizing their price sensitivity and perception of the value of a product or service. By identifying consumers’ willingness to pay, companies can adjust prices and achieve better profit margins. Here again, several options exist to measure price elasticity:
- Use historical data to refine your impact estimates
- Work on your segmentations
- Optimize based on experimentation.
Our experience shows that customer-centric pricing strategies create the most value.
Optimize prices dynamically
Static pricing strategies are over! Today, dynamic pricing models make it possible to adjust prices regularly according to demand, seasonality, competition and other contextual changes of the market. By relying on data, companies can optimize their pricing to maximize their revenues, adapting to variations in supply and demand. Here again, it is a question of optimizing prices in a reasoned way by making a trade-off between the frequency and the amplitude of the variation, especially since consumers are more and more frequently exposed to situations of price variations.
Use pricing optimization tools
In the age of AI, price optimization tools have become indispensable assets. These tools automate pricing processes and become decision making assistants while saving time and reducing human error. According to the BCG, nearly 10% of a company’s turnover is related to so-called “Revenue Assurance” activities. Revenue assurance is the establishment of a team and the use of tools and processes to optimize pricing strategies to reduce the revenue losses a company may have.
By leveraging data analytics and machine learning algorithms, companies can make informed pricing decisions, ensuring competitiveness and growth.
Loyalty Programs and Promotions
To attract new customers and encourage repeat purchases, companies can experiment with loyalty programs, promotional pricing, discounts, or bundling strategies. These tactics create a sense of importance, urgency and inspire customers to take action. Well-executed pricing incentives can lead to increased sales volume, customer loyalty, and expanded market reach.
Pricing is a powerful growth engine that should not be underestimated. By taking a strategic, data-driven approach, companies can access untapped growth potential. From automating pricing to strategies focused on consumer price sensitivity to understanding consumer psychology, the possibilities are vast. Don’t forget to analyze market trends, experiment and adapt pricing strategies to ensure your growth in an ever-changing market. The pricing power can pave the way for you to increase your revenue and profitability, request a demo to know more.
¹ McKinsey – Economic sensitivity analysis – October 2019
Simon Kucher – Confession of the Pricing Man : how price affects everything – 2015