8 Steps of Setting Pricing Strategy || Dolans' Eight
The price of your product can do a lot of things. Even if you have a lot of marketing strategies put in place, sometimes, the customers are going to look at only one thing before making purchasing decision, not all the time, and that is the price of your product or service.
And, if set properly, the pricing policy can tell a lot of things about the business and the product to the customers.
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The eight steps are -
1. Understand the value the customers put on the product or service:
Customers always have a set price in their mind based on a lot of things. So, before setting up a price, you have to think about how the customers are likely to value the product. we are still talking about the product level, and have not moved on to brands and subbrands.
There are different ways a company can figure out what value does the target consumers put on a specific product.
2. Try to find the variation in the value that the customers put on the product
Different customers are likely to put different value on the same product. the value they put on a product or service can depend on a lot of things. It can vary in the usage rate of a product. or the intensity of the product as well.
Different application of the same product will in turn have different value in the mind of the customers in the separate segments.
3. You have to assess the price sensitivity of the customers
Consumers are always going to look for the best value for the price they pay. And increasing the price can take away consumers willingness to buy from you. how sensitive are the target consumers to the price changes.
The fun thing in todays day and age is, you can literally buy the sensitivity data from different firms and see how much of the quantity sold can change given one percent change in the price of the given product or service.
4. Make an optimum pricing structure
What are you going to charge per product and are you going to create a bundling system for people buying in bulk. Are you going to provide discount on the quantity being sold or is there a bundle pricing in place.
In different scenarios, one product can be sold to both individual buyes and industrial firms. The amount being bought is not going to be the same to these two groups.
What are you providing to these two groups. What is the overall pricing structure. I’ll give examples of different pricing structures in the example section. Don’t worry about it.
5. You have to keep your competition on your mind when setting up the price.
In an ideal market, you will definitely have competition. And when you set a price on your product, the competition is going to try and do anything they can to undermine you pricing strategy so that they can attract more customers.
6. Monitoring the prices at the transaction level
You need to think more in terms of the finances of the company. What impact it is going to have in the revenue being generated for the company.
In different types of businesses a lot of pricing conditions can be put in place.
You have to put all of them together and see what impact it is going to have in the bottom line of the business.
Once the price is set, changes are not that easy. You have to see what happens when things go out and monitor it properly.
7. Find out the emotional response of the customers
Previously I talked about finding out the customer response in terms of money. In this step, you have to find out how they are likely to feel about the product.
If they think a product price is not fair for them, they are not going to buy it in the first place, the overall idea in the mind of the customer is going to be negative about the company.
On the other hand, if the customers can be convinced that they are getting a certain product at a great deal, they are likely to stick with the product in the long term. That is why so many companies start out with such low prices that they have to wait for a long time before they start making any serious profit.
8. You have to figure out whether the returns you get are worth the cost
When you set the different price ranges for different users and make a structure, you need to make a forecast on how much it would cost you to serve them.
The pricing strategy is about the marketing department. But, the management and the managers need to take every other aspect into care when setting up the pricing strategy. When Robert J. Dolan came up with these eight steps talked about the inputs of finance, sales, accounting, and other departments input on the pricing strategy. Setting up the pricing strategy is not just about setting a price on the product or service. The steps leading up to setting the price is more important.
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