Most companies have a lot of room for improvement when it comes to their pricing strategy. Sure, they all want to keep their costumers happy and maximize profits, but their pricing more often than not resembles a guessing game. That is why pricing optimization is so relevant for each and every business. If you can find the right price for your products or services, you optimize the balance between value and profit. That’s just smart business!
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Table of contents
What is it?
Pricing optimization might sound complicated. It really isn’t though. Plus, it is simply the process of optimizing your prices for your products or services. This way you can balance your profit and the value for the costumer. In short: It is finding the right price for your products. The process of price optimization can be hard though. A lot of businesses, both big and small, find it tough to set their prices. They either charge too much to optimize profit or charge too little to attract as much clients as possible.
In pricing optimization, it is not only just a matter of finding the best price for your business goals. In the process you will get a grasp of how costumers will respond to different pricing strategies. This is called the elasticity of demand. Will costumers be more keen to buy your products or services with a lower price? And at which pricing level will they be unwilling to buy what you’re offering?
Of course, pricing is not the only factor of relevance. For pricing optimization, there are a lot of factors to consider. You want to attract as many costumers as possible, but you also want to cover your costs. And then there is the competition that’s breathing down your neck. You want to stay ahead of them, through price tracking or special discounts, but without losing too much money. To optimize your prices, you need to have a good grasp of your business and the field and have the right tools to help you along.
Price management has always been a challenge for businesses. Not only is it difficult to set a justified price for your products, it is also hard to take into consideration all the other factors that weigh in. That is why there are so many different pricing strategies out there. Some companies focus on maximizing their profits. Other companies want to be as competitive as possible and aim for the lowest possible price to undermine the competition.
In this modern time, pricing has become increasingly challenging because of a numerous reasons. Costumers know, better than ever, what the market has to offer. They can compare prices with just one click and businesses use simple tools to find the best deal for each product. Above it all, the market moves fast and stops for no one.
Price optimization versus dynamic pricing
Although the process of price optimization has some overlap with the process of dynamic pricing, the two are not the same. In price optimization, you strive for the best price for your business and your clients. Dynamic pricing, on the other hand, is a very specific pricing strategy.
Businesses that use dynamic pricing use a pricing strategy of altering their prices to match or undercut their competitors. This strategy demands a constant monitoring of the market. You have to be able to act fast and change the prices frequently.
Although dynamic pricing and price optimization share some common ground, they are not identical. Dynamic pricing can be part of your strategy for price optimization, though.
Another term that is often confused with price optimization is automatic pricing. Although automatic pricing can help a business with their price optimization process, they are not the same. Automatic pricing is simply a way to change the pricing process. Through smart tools and software, you can automate the pricing of your business.
In price automation, you are not changing the pricing strategy. You are actually implementing the strategy in a fast and efficient way. You can use certain pricing ‘rules’ to set the optimal prices for your products. And through machine learning you can actually make the process even more specific. With machine learning, your pricing tools will even use existing data to be even more efficient.
How to optimize your pricing
Pricing optimization gives you a chance to make yourself and your customers happy. Smart price management is all about knowing your costumers, your business, the costs and the competition. If you want to invest time and effort in this: throwing around discounts and sales just won’t cut it.
- Know your audience
To optimize your prices, you need to know your target audience. What is their age? Where do they live? What are their values? What do they need? And you need to know how you can get one up on the competition. This doesn’t always have to be a financial advantage though. Costumers value service, quality and many other factors too. This can be of additional value.
- Use geographical data
The price of your product and the possibilities for sales are very dependent of the location of your business and your costumers. Every market is different and every region has its own markers. Dive into the geographical data and discover how the market runs in your area. And more importantly: what costumers are looking for.
- Quantify value
Once you have a good grasp of your costumer, it is important to discover what they see as value. A big part of pricing your products is understanding the value you deliver. Value is not merely the costs of the product. You should take into consideration the market, the costumer’s perception and the utility of the product as well.
- Track your expenses
When you sell a product you want to cover the costs of producing it. This means you want to establish a price that covers the costs of making the product, the materials used, the packaging and the sales. Don’t forget to take into consideration the costs for promotion, rent, wages, website maintenance and all the other important factors to keep your business running. All these costs combined, and divided by the production volume establish a break-even point. This is the minimum amount you have to charge for your products or services to break even.
- Analyze historical data
To make a decent estimate of future sales you need to have historic data. This can be data from sales, costumer reviews or shop visits. If you are a new business owner you can make use of data from competing businesses or from special software for these purposes. All this information can be put to good use to make an estimate of how your business has been performing and how it will evolve.
- Monitor the competition
In pricing you do not only need to take into consideration your expenses and your audience. There is also the competition to keep an eye out for. No business is an island. Even when you have set your ideal price, the competition can have a major influence on your sales. They can offer lower prices, have a discount or undermine your sales. Through price tracking and dynamic pricing you can stay on top of that. But there are easier ways.
Pricing optimization software
As you can see, there is quite some work to be done if you’re new to pricing optimization. Fortunately, you do not have to do all this by yourself. Additionally, there are numerous tools that can help you with price management and price optimization.
It is possible, through mathematical analysis, to determine which prices are best for both your company and your clients. The data for this analysis can come from surveys, costumer reviews, business costs, inventories and historic sales. All this information can not only predict the behavior of your costumers, but it can also determine the ideal price for your business goals.
Pricing has become increasingly difficult through the years. Because, businesses have become more complex and the market is dynamic. Luckily, you can keep up with it through this software. The program uses artificial intelligence and machine learning techniques to offer the best insights and services.
Whether you want maximized competitiveness, price tracking, increased sales number or the scoop on your target audience: optimization software like Prisync can give you the insights and give you a great advantage over your competition.
Using this software will not only give you an insight in the ideal initial price though. It can also offer you insights on possible discount prices and promotional prices to suit your business best.
The software offers you the possibility of using strategies like dynamic pricing, price scraping, price matching and price checking to constantly stay up to date. And all that without the manual labor or the time consuming task of monitoring and adjusting numbers yourself.
Do you want to increase your profit margins and reduce the amount of work on your pricing strategies? Than pricing optimization software is the way to go!pricing strategies