The Price Is RIGHT: 5 Pricing Models Explained | Vistage

Share this: · Cost-Plus Pricing. This model is frequently used to maximize profits within the business. · Value-Based Pricing. This model entails ... Research&Insights Explorebycategory CustomerEngagement ThePriceIsRIGHT:5PricingModelsExplained GinaAbudiFebruary29,2012 Like Sharethis:ClicktoshareonLinkedIn(Opensinnewwindow)ClicktoshareonTwitter(Opensinnewwindow)ClicktoshareonFacebook(Opensinnewwindow)Clicktoemailthistoafriend(Opensinnewwindow) Determiningthemostappropriatepricingmodelforyourbusinessistrickyandtakesconsiderableresearch,planningandtestingbeforefullimplementationacrossallofyourproductsandservices.Ofparticularconcerntomanybusinessownersistheimpactofpricemodelchangesonthecustomerandtheirstandingamongthecompetition. Whendetermininghowtobestpriceyourproductsandservices,consider: Thecurrentpositioningofyourproductsandservices.Aretheypositionedaslow-costoptions,luxuryofferings,orsomewhereinthemiddle?Thepricingofyourproductsandservicesmustbealignedwithhowtheyarepositionedinthemarketplace.Thehigherthequalityofyourproductsandservices,thehigherthepriceyoucancommandfromcustomers. Yourcustomers.Willyourcustomerstoleratechangetothepricingmodelforyourproductsandservices?Ifso,howmuchchangewillbetolerated?Howmuch“leadtime”isnecessarybeforeimplementation?Howwillpricingaffectthedemandforyourproduct? Yourcosts.Whatareyourcoststoproduceyourproductsandservices?Don’tconsiderjustthecurrentcosts,butalsoexpectationsaroundincreasesincostsinthenearfuturebasedontheindustry,suppliers,competitionanddemand.Youdon’twanttohavesuchanexactpricingmodelbasedoncurrentcoststhatpricingmustbechangedwithinafewmonths. Don’tskipresearchingwhatiscommonplaceforyourindustry,fortheregion,oramongyourcompetition.Thisdoesn’tmeanyoumustmimicwhateveryoneelseisdoing.Butyoushouldbeawareofwhatisbeingdone,andwhatisnot.Inevitably,othershavedonetheirresearch,andtheremaybeagoodreasonwhyaparticularpricingmodelisnotusedforproductsandservicessimilartowhatyouoffer. Whatdoyouwanttoaccomplishbyhowyoupriceyourproductsorservices?Isprofitmaximizationessential?Andareyoufocusedonshort-termorlong-termgoals?Youmustchooseoneortheotherasagoal;itisnotpossibletomaximizebothshort-andlong-termprofitabilitywiththesamepricingmodel. Areyoutryingtodifferentiateyourselffromthecompetition?Ifmanyofyourcompetitorsofferlower-pricedproductsorservices,youmaywanttodifferentiateyourselfbyfocusingonthehighvalue(andthereforehigherprice)ofyourproductsandservices.You’llneedtobereallyclearabouthowyouaredifferentthanthecompetitiontobesuccessful. Thereareavarietyofpricingmodelsyoucanchoosefrom.Forexample: Cost-PlusPricing.Thismodelisfrequentlyusedtomaximizeprofitswithinthebusiness.Itentailsaddingupallofyourcostsassociatedwithofferingaproductordeliveringaserviceandaddingonapercentageforprofit. Value-BasedPricing.Thismodelentailssettingyourpriceforyourproductsandservicesbasedontheperceivedvaluetothecustomer.Thepricetoonecustomermaybedifferentthanthepriceofferedtoanothercustomer. HourlyPricing(timeandexpense).Forbusinessesthatofferservices,youmaychoosetoofferhourlypricing(timeandexpense)foryourservices.Insuchasituation,youinvoicetheclientforallexpenses(suchasmileagetoclientsite,etc.)andforeachhourofworkatasethourlypricedependingontheservicesbeingoffered. FixedPricing.Thismodelchargestheclientasetpriceforaserviceoffered.Forexample,aproject-basedcompanymaychargeaclientapriceof$25,000tocompleteaprojectregardlessofhowmanyhoursareexpendedorhowmanyresourcesareinvolved.Ofcourse,indeterminingyourfixedpricemodelyou’llwanttoconsiderthecomplexityofservicesand,onaverage,howmuchtimeandresourcesmustbecommittedtotheproject.Withoutatrueunderstandingofthecosts,abusinesscanlosemoneyonfixed-pricecontracts. Performance-BasedPricing.Inperformance-basedpricing,youinvoiceyourcustomerbasedontheperformanceoftheproductorserviceyoudeliver.Suchapricingmodelmightonlybeusedforcertainclientsandinspecificsituationsasitrequiressignificantagreement(inwriting)betweenyouandyourclient.Youmustspendthetimeupfrontsettingguidelinesforperformance-basedpricingmodelsanddevelopingveryclearandunambiguousmetricsforachievementoftheobjectives.Ifyouareinarush,orgettingpressurefromtheclienttomoveforward,donotattemptperformance-basedpricingmodels. Whenchoosingyourpricingmodel,testitoutfirst.Ifyouareabouttorolloutanewproductorservice,youmaychoosetotestoutthenewpricingmodelwiththatnewproductorservice.Certainlykeepcustomersintheloopaboutchangesyouaremaking.Chooseagroupofcorecustomerstotestyourpricingmodel.Asimpleconversationwith,ore-mailto,yourcustomersexplainingwhatthebusinessisdoingandwhywillhelptosocializethepricingmodelchangeandgetbuy-inandsupport.Certainly,youwillhearifthechangeisnotacceptable.Bettertoknowthatbeforeyoumakethechange!Unlessyouareabrand-newbusinessjustopeningyourdoors,youwillneedtosocializechangestoyourpricingmodelpriortoimplementation. Muchlikeeverythingelseyoudoinyourbusiness,planupfrontandgetinputfromthoseyoutrustandwhoseopinionsyouvalue.Understandwhatyourcustomerswantandbepreparedtoclearlydelineatethebenefits(tothem)ofthenewpricingmodelyouselectforyourbusiness. ThistopicandmoreareincludedinVistageConnect™peeradvisorysessions. GinaAbudiispresidentofAbudiConsultingGroup,LLC,providingstrategyandimplementationaroundprojects,process,peopleandtechnologytobusinessesofallsizes.Ginacanbereachedviaherwebsite,AbudiConsulting.com. 141318views Sharethis:ClicktoshareonLinkedIn(Opensinnewwindow)ClicktoshareonTwitter(Opensinnewwindow)ClicktoshareonFacebook(Opensinnewwindow)Clicktoemailthistoafriend(Opensinnewwindow) Category:CustomerEngagement Tags: Competitors,customers,Pricing AbouttheAuthor:GinaAbudi GinaAbudiispresidentofAbudiConsultingGroup,LLC,providingstrategyaroundprojects,process,peopleandtechnologytobusinessesofallsizes.Ginacanbere… LearnMore MeticulouslyExplainedall!Thankyouforthisbeautiful,insightfularticle! Like Reply Interestingandstraightforward.Iwashopingtohearmoreaboutpricingstrategyversusthemodelitself.Wouldyounotbeuncomfortablesharinganypublishedorprivateworksonwhatsortofdecisionprocesstouseinordertodecideonapricingstrategy? Like Reply Thankyouforyourcomment@Don!GinaAbudisharedacouplelinkswithusinresponsetoyourquestionaboutthedecisionprocess.Pleasereadbelowandletmeknowifyouhaveadditionalquestions.Thankyou! “Herearetwolinksthatmaybevaluabletoshare.Thesecond,fromAmericanExpress,prettymuchcoversmanyofthestepswetookatAbudiConsultingGroupinordertodecideonourpricingstrategyforourclients.Specifically,weconsideredthefollowing: •Ourclientbase •Ourcompetition’sproductsandservices •Ourkeydifferentiators HBR:https://hbr.org/2018/09/the-good-better-best-approach-to-pricing AmericanExpress:https://www.americanexpress.com/en-us/business/trends-and-insights/articles/get-it-right-pricing-strategies-that-work-mtmc/ Ihopethishelps! Best, Gina” Like Reply LeaveaReplyCancelreplyYouremailaddresswillnotbepublished.Requiredfieldsaremarked*CommentName* Email* Website Δ GetthelatestCEOinsights. 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