Increasing business revenue is possible not only by entering new markets or expanding the range of services/goods and consumer base. An important factor in optimizing revenue is pricing management. If you set prices for your offers correctly, you will achieve more stable demand for your products or services. However, the pricing landscape is constantly changing. Therefore, by setting prices once and for all, a business can lose in market competition. Prices should be constantly reviewed and adjusted depending on consumer sentiment, competitors’ behavior, increase in production costs, etc. Price management software will cope with this task best in comparison with manual price setting. It monitors all factors that affect pricing in real time and adjusts the cost of your products for consumers.
6 Steps to Setting Prices
- Identify all the factors that should be considered when setting prices. These should include production costs, competitor pricing, consumer purchasing power, price elasticity, etc.
- Collect comprehensive data on each of these variables.
- Develop rules for setting basic prices for your products, taking into account their positioning in the market and your growth strategy.
- Determine conditions for price increases, discounts, sales, etc.
- Track the effectiveness of pricing rules based on consumer feedback, sales growth, etc.
- Adjust prices taking into account market dynamics and database expansion.
Pricing Management as the Art of Market Balancing
Finding the perfect prices is a responsible task for any business because the profit of companies suffers from overpricing and underpricing alike:
- A business may hope to attract consumers with lower prices. But the effect may be just the opposite they will think the product is made of lower-quality materials. And if you offer subscription services, a free tariff plan may be perceived as unfair play.
- If you raise prices by offering premium goods and services, they may not correspond to the purchasing power of most consumers. And the narrow target group that can pay such a price will provide you with only limited demand.
- If you offer a few price tiers for subscription services, potential customers may not find a tariff plan advantageous for their situation. Not wanting to overpay for features they do not need, they will go to another provider.
To avoid these pitfalls, businesses use different pricing models. For example, the most popular approaches among SaaS companies are the following:
- Tiered pricing;
- Flat-rate pricing;
- Usage-based pricing.
They use different models to attract and retain customers. To convert new users, they use a freemium model. Then, they switch to retaining customers with highly structured loyalty programs.
Common Price Management Challenges
- Integrating different data into a common pricing formula. Data changes quickly, and the more complex your formula is, the more intensely the price will change. Moreover, the data may be wrong and pull the price in the wrong direction.
- Tendency to simple solutions. AI-powered software can help cope with integrating data from different sources. However, many executives still prefer to rely on their intuition. Nevertheless, not everyone has a well-developed intuition, so companies can lose millions of dollars in revenue on erroneous decisions.
- The negative side of price discrimination. Companies use different methods of price discrimination to attract new customers or penetrate new markets. However, this can lead to unequal access to goods or services for consumers. Moreover, it encourages different forms of fraud, which results in the company losing profits. For example, consumers can create multiple accounts to receive discounts and bonuses for new customers.
- Localizing prices when entering new markets. Scaling a business increases the complexity of pricing because businesses need to obtain data that may not be available in the open space.
- Bias towards a competitive pricing strategy. Without alternative approaches to pricing, companies may be too dependent on competitors to determine their prices. As a result, they may lose profits and alienate consumers.
Benefits of Using Pricing Management Software
- Centralization of information. All data on products/services and factors that affect their price will be available in one place. This will protect you from data loss, omission of information when calculating the price, etc.
- Sophisticated analytics tools. Pricing management software includes advanced tools that help optimize pricing.
- Faster pricing decisions. By defining pricing rules, you can automate these processes. This means you will not waste time coordinating them with all departments and company management.
- Instant price changes on all platforms. If you use different sales channels, the software will change prices on all of them simultaneously. This will ensure price consistency and save you from consumer frustration.
- Implementation of complex pricing strategies. Loyalty programs can include complex discounting rules. Pricing software copes well with multi-tiered pricing of any complexity without a single error.
- Possibility of payment for goods/services in different currencies. You will be able to expand the list of currencies available to consumers. Currency conversion for your offers will be automatic.
Essential Features of Effective Pricing Management Software
- Easy integration of software with other platforms, such as Customer Relationship Management (CRM) or Revenue Operations Software.
- Dynamic pricing for automatic price adjustment.
- Comprehensive analytics based on real-time data.
Generating automated analytics reports for each product/service will help you gain a deeper understanding of how changes in your pricing policy affect sales growth.
- Creating hypothetical scenarios to model the consequences of price changes.
- Using pricing alerts to attract the attention of specialists to changing market conditions.
- Automatic price adjustments for different target audiences. The software easily handles consumer segmentation and demonstrates prices for each segment, taking into account its discount or tier level.
- Data synchronization using API. Users can connect their pricing software to any third-party platform. This facilitates business partnerships and the management of multiple sales channels.
The Bottom Line
Price management software is the best answer to a rapidly changing market environment. With its help, you can take into account multiple factors affecting pricing. When entering the markets of other countries, it is necessary for successful competition with regional companies. You will be able to adjust prices in accordance with local specifics and increase sales. Automation of pricing, in-depth analytics, and many other useful features will take your pricing management to a new level.