Let me tell you an amazing fact, that will change your perception about your business pricing strategy.
Around 85% of customers worldwide think pricing is an important factor for products and services. In India, particularly, 5 of 10 people always sort the products at low to high pricing, when shopping.
That’s why your company’s pricing strategy is extremely important for your business. Prices play a fundamental role in a company’s revenue.
So, whether you’re a startup, an established SME, or a business in need of an effective business pricing strategy refresh, read on to discover the key factors to consider and the strategies that best suit your needs.
What is a Pricing Strategy?
Pricing strategy is the approach you take to determine the prices of your products or services. It’s not just about picking a number; it’s about understanding your costs, market dynamics, and customer behaviour to set a price that maximises your profitability while remaining competitive and appealing to your target audience.
Why do you need a Pricing Strategy?
Let me explain with an example of one of the most effective business pricing strategies implemented in the most competitive space – Telecom!
Remember, Jio’s pricing strategy? The launch of Jio’s freemium model for more than a year disrupted the entire telecom industry (don’t worry, we’re not suggesting you give away your products/services for free :P). In just 6 years of Jio’s launch, the price of 1GB of data fell from ₹350 to just ₹13. A fall of a whopping 95%!!
Jio still managed a bag a profit of ₹5,098 crore in the first quarter of 2023. But how?
- Profit Maximisation: A well-thought-out company pricing strategy can optimise your profits by ensuring that you’re not leaving money on the table or scaring away potential customers with high prices. Jio launched multiple digital platforms, to diversify revenue streams and ultimately, profits.
- Competitive Positioning: It helps you position your business within the market, whether you want to be the premium and costly choice or offer cost-effective solutions. Even after the end of the freemium model, Jio kept the standard prices at ₹199, lower than competitors, providing a cost-effective yet efficient solution.
- Long-Term Sustainability: The right business pricing strategy can sustain your business in the long run, covering costs while generating enough revenue for growth. Jio’s profit grew 12.5% Y-O-Y in FY2023.
- Customer Satisfaction: Finding the right price point for your target audience ensures they perceive your product or service as valuable, leading to increased customer satisfaction and loyalty. As per a survey, 60% of Jio users are highly satisfied with Jio’s services.
Now that you understand why an efficient business pricing strategy is vital, let’s delve into the key factors you need to consider.
Factors to Consider While Picking Your Pricing Strategy.
Creating a business pricing strategy can be complex but breaking it down into these crucial factors will guide you towards making the right decisions. To help us understand some factors you should consider while determining your pricing strategies, we have Ram with us.
Ram is not just any entrepreneur; he’s the visionary founder of “GreenSack Creations,” a business that breathes life into eco-friendly reusable bags. Ram’s bags aren’t just carriers of items; they’re ambassadors of sustainability, crusaders against single-use plastics, and harbingers of a greener future.
Just like the intricate threads that weave his bags together, his pricing strategy is a delicate yet robust blend of art and science. So, here are the 4 factors Ram took into consideration while making his company’s pricing strategy:
- Know Your Costs
Before setting any prices, it’s essential to have a firm grasp of your costs. This includes both direct costs (e.g., materials, labour) and indirect costs (e.g., overhead).
To determine his business’s pricing strategy, Ram needs to account for the cost of raw materials, labour, machinery, rent for the production facility, and administrative overhead. Let’s say the total cost per bag is ₹50.
- Know Your Value
Your product or service should offer unique value to your customers. This value is what will ultimately determine the price you can charge.
Ram’s eco-friendly bags help customers reduce their single-use plastic consumption and contribute to a sustainable environment. This unique value allows Ram to price his bags higher than standard plastic bags.
- Consider Your Competition
Competitor pricing is a significant factor. You want to be competitive without undercutting yourself.
In Ram’s market research, he finds that similar reusable bags are priced between ₹80 and ₹100. Pricing his bags within this range ensures he is competitive without devaluing his product.
- Consider What Customers Are Willing to Pay
Your customers’ perceived value might not always align with the actual cost. Conduct market research and surveys to understand what customers are willing to pay. For instance:
Through surveys, Ram finds that customers are willing to pay up to ₹90 for eco-friendly reusable bags because of their environmental benefits. This customer willingness to pay informs his company’s pricing strategy.
With these factors in mind, you’re well-prepared to choose a pricing strategy tailored to your business!
In the world of Indian SMEs and their customer base, where the market is ever-changing, we have some statistics for you to emphasise on the importance of your pricing strategy:
- Nearly 50% of Indian consumers prioritize price as their primary decision-making factor when purchasing products or services, according to a survey by Nielsen. This underlines just how crucial your pricing strategy is in capturing the attention of Indian customers.
- SMEs that implement dynamic pricing strategies experience, on average, a 15% boost in their overall profitability, as revealed by a study by Zoho Corporation. This is a testament to the potential impact a well-crafted pricing strategy can have on your bottom line.
- In the realm of e-commerce, where many SMEs operate, a study by PwC found that 70% of Indian online shoppers compare prices across multiple websites before making a purchase. This emphasizes the need for competitive and attractive pricing to stand out in the digital marketplace.
- Nearly 50% of Indian consumers prioritize price as their primary decision-making factor when purchasing products or services, according to a survey by Nielsen. This underlines just how crucial your pricing strategy is in capturing the attention of Indian customers.
These statistics tell a compelling story about the critical role a business’s pricing strategies play in the success of SMEs in India. It’s not just about numbers; it’s about understanding customer behaviour, market dynamics, and staying ahead in the competitive race.
Your business’s pricing strategy is more than setting numbers; it’s about creating a narrative that resonates with your audience and sets your SME on the path to growth and prosperity.
Now, the spotlight is on you. What are your thoughts on these statistics, and how do you plan to incorporate them into your pricing strategy for your business?
For more on the various pricing strategies and which one might be the best for you, stay tuned for our next blog!
If you are looking to revamp your pricing strategy but don’t have the time or the resources to do this, don’t worry! That’s where we come in!
Set up a non-chargeable business review call to get solutions tailored for your business today! – https://calendly.com/reachout-_g/30min?month=2023-06
