An Effective Pricing Strategy Wins Sales
Pricing is either fixed or custom. Retail businesses typically use fixed pricing; even though they may use a number of changing price methods or strategies, such as price mark-downs, or use loss leader pricing strategies. Custom pricing is often developed through a request for quote (RFQ) or a request for proposal (RFP) or even through a request for information (RFI).
Quoting occurs by using a defined set of rules and standards: these rules and standards work to bring some ‘order’ to the custom pricing process. For example, if you know that it normally takes you five hours to produce 10,000 widgets then your standard is 2000 widgets per hour. You will also assess how much material you consume in that hour to produce the 2000 widgets and what you pay for labor in that hour. Those standards provide the base for your quotation.
For most purchasing agents or buyers the number one requirement in a quotation is that you assure them that you are credible and consistently reliable (there is no point in being the lowest price if you can’t deliver on time). Buyers also expect service and quality to be competitive. And, yes, they do want a good price.
What is a good price? Surprisingly, often the lowest price is not considered to be the best price and it does not always ‘win’. Buyers are more and more concerned that the lowest price provider means that corners are being cut and that service, quality, and reliability are being compromised.
If your product is truly unique and has high value, then your price can be higher than other suppliers. But you will need to ensure that your quotation or proposal clearly highlights the unique value proposition (UVP), the differentiation (from your competitors), and how you’ve positioned your product or service.
You also need to understand what the demand and supply relationship is: this is also known as the price elasticity of demand. Are your products in high demand with limited supply? Or is there a lot of supply to match the demand? Or is there no demand and a lot of supply? Understanding the market will help you price your products or services correctly; and help you sell.
If you have a lot of competition and your product or service is very similar to your competitors it will be difficult and challenging to be higher in price than your competition – because you can be easily displaced or substituted.
A good strategy to focus on when setting new prices for new products or services, is to research your competition.
Is your product better? How? Is your product different? How? What type of pricing strategies do your competitors use (marketing penetration, loss leader, price skimming, product line pricing, value bundle pricing, companion pricing, economy pricing, psychological pricing, and many more)?
Understanding how to write a winning proposal is more than understanding fixed and variable costs and productivity, it is about understanding how to present a solution in such a way that you communicate your unique value to the customer, and that you communicate your differentiation, and product or service positioning.