Wednesday, January 20, 2010

The Current "Art" of Pricing Is About to Become an Exact Science

Many marketers spend a lot of time and money trying to find the perfect price -- and still can't be scientifically sure that their first answer is correct. That's true even with many large companies, and certainly the vast majority of smaller ones.

Whether you're large or small, here are some common pricing techniques you'll recognize...

  • evaluating product features and customer benefits
  • marking up your cost of production
  • undercutting competitors' prices
  • asking key customers
  • getting feedback from salespeople
  • considering typical customers' "disposable income"
  • soliciting advice from consultants, or business associates, whomever...

Sound familiar? Most companies mix this "data" together, and somehow magically come up with "the number."

But what does that number mean, really? How do they know it's the perfect price... the number that's going to maximize their profit?

The answer is... they don't.

For example, you could undercut your competitor's price. But how do you know their price was right? Or, what if you don't have direct competition?

Use a spreadsheet? What numbers do you plug in for customer response and resistance-to-price variations? Your results are only as sharp as that unknown customer perception. Why guess? After all...

Launching at half the price could double your profit. Or maybe, pricing a few dollars higher could add thousands straight to your bottom line.