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Set Pricing for Customer Loyalty & Long-Term Profitability

The right pricing strategy will create customer loyalty and long-term profitability. The wrong pricing strategy will send your customers running and drive your profits down.

Here's how to set pricing so that your customers will keep coming back again and again, and help you realize long-term profitability.

Focus on value pricing
Value pricing is not discount pricing. Rather, it is pricing your product or service based upon how much the target customer believes it to be worth. Or, as Price Intelligently puts it: “Customers don't care how much something cost you to make or your competitors, they care how much value they're receiving at a particular price.”

Determining the value your target customer places on your product or service takes time and research (a lot of it). Because of this, many companies shy away from value pricing. However, by focusing on value pricing, you will increase your long-term profitability, gain customers, and develop a following of loyal customers.

Neil Baron wrote a great article for Fast Company on how a dead squirrel taught him about value pricing. The long and short of it, according to Baron: “Many companies worry about the commoditization of their offerings and their inability to justify premium pricing — but if you figure out how to take care of your customers' 'dead squirrels,' you're golden.”

Make pricing flexible
After taking the time to research and determine your value price, set the price with a modicum of flexibility. A little flexibility will go a long way in terms of being able to adjust to customer's needs and the needs of your company.

Remove complexity
Pricing should be fair, direct, and easy to understand both internally and externally. Complex and unfair pricing not only brings a host of challenges to your company, it also discourages customers and undermines your company's credibility.

These three strategies will keep your customers happy and your sales humming along.

18 comments on “Set Pricing for Customer Loyalty & Long-Term Profitability

  1. t.alex
    December 21, 2013

    In fact, I believe for most pricing strategy, it depends on the relationship and the long-term commitment the customers have made. Most of the time, any customer will just press for the lowest price possible.

  2. Houngbo_Hospice
    December 22, 2013

    @t.latex: Experienced customers will likely look at the product's specs before they commit to buying. Very low prices make people be suspicious about the quality of the product.

  3. Daniel
    December 23, 2013

    “The right pricing strategy will create customer loyalty and long-term profitability. The wrong pricing strategy will send your customers running and drive your profits down.”

    Frank, setting the prices at affordable and justifiable level is important in attracting more business. But the current trend is collecting maximum profit at initial stage, by fixing the price at higher level and later giving further discounts, when competition becomes tighter.

  4. Daniel
    December 23, 2013

    “In fact, I believe for most pricing strategy, it depends on the relationship and the long-term commitment the customers have made. Most of the time, any customer will just press for the lowest price possible.”

    Alex, that's possible only when customer is aware about the pricing and market trends. Based on suh knowledge/experience they used to negotiate for a better price. At the same time a new customer may end up in paying high price too.

  5. Houngbo_Hospice
    December 24, 2013

    @Jocob: Right, pricing is governed by the law of demand and offer. When they are many businesses selling the same products, competition will drive the price low.

  6. t.alex
    December 25, 2013

    Yep new customers typically pay higher price.

  7. SunitaT
    December 26, 2013

    We get lots of “value for money” products, especially smart phones out in the e-market today. However, pricing has to be done “competitively”. Too low, and consumer would think the product uses cheap and easily worn out parts, and wouldn't go for the product. Too high, and consumer wouldn't even look at the product, unless it is coming from a reputed company. For example: Nokia Lumia 520 sold more in the sub $200 range than any other smart phone in history. Similarly, Samsung Galaxy Note 3 was bought multiple times before users found out it's inferiority to its successor, the Note 2.

  8. SunitaT
    December 26, 2013

    @Jacob, every marketing giant divides consumers in three fields: 1. Consumers who would go for inexpensive but trustworthy goods. 2. Consumer who would like mid ranged goods, decent service at a good price and 3. Rich people. Every company takes time out to make prices competitive where there are many industries churning out the same things. However, in the electronic supply chain, the company has to ensure decent after sales service. Xolo, a subsidiary of Intel, has gone down in the Indian and Chinese markets because they have horrible after sales service, even though their smart phones are competitively priced and at times give better price value than Samsung or any other OEM.

  9. Taimoor Zubar
    December 26, 2013

    “Too low, and consumer would think the product uses cheap and easily worn out parts, and wouldn't go for the product. Too high, and consumer wouldn't even look at the product, unless it is coming from a reputed company”

    @tirlapur: I agree. Price certainly has a role to play in telling the customers whether the product is meant for them or not. It serves to segment the consumers into those who can afford and should buy it and those that shouldn't or cannot.

  10. Taimoor Zubar
    December 26, 2013

    “But the current trend is collecting maximum profit at initial stage, by fixing the price at higher level and later giving further discounts, when competition becomes tighter.”

    @Jacob: That strategy is known as market-skimming prices where you set a high price to only skim the consumers from the market who can pay the high price. Generally these are the enthuisiasts or ardent fans who don't mind paying a premium price just to be the first ones to try the product. Once you penetrate through them, you lower the price to hit the masses. I think this strategy has worked for most technology companies including Apple.

  11. Taimoor Zubar
    December 26, 2013

     

    “Most of the time, any customer will just press for the lowest price possible.”

    @t.alex: I don't think this applies to all kinds of products. In cases where the products are pretty similar to each other and there is no differentiation in terms of the features or the brands, the customers will go for the lowest price. But, practically, the companies try to make their products stand out so the customers no longer for the lowest priced one but makes a rational choice by looking at the characteristics too.

     

  12. t.alex
    December 26, 2013

    TaimoorZ, you are right. Creating strong differentiating products will definitely make customer pay premium.

  13. Hailey Lynne McKeefry
    December 27, 2013

    @t.alex, i agree that manycustoemrs go for lowest possible price. At the same time, many understandt he high cost of low quality, counterfeits, etc. There is a high value to having a relationship with the supplier and to understanding what a fair price is and what a ridiculously low price is.

  14. Daniel
    December 29, 2013

    “Right, pricing is governed by the law of demand and offer. When they are many businesses selling the same products, competition will drive the price low.”

    Law of demand is an old concept and now companies are creating artificial demands for a price hike. For example in automobile industry they will go only for 60% of booking for production and hence a 3-6 months waiting period of realizing the order.

  15. Daniel
    December 30, 2013

    “That strategy is known as market-skimming prices where you set a high price to only skim the consumers from the market who can pay the high price. Generally these are the enthuisiasts or ardent fans who don't mind paying a premium price just to be the first ones to try the product.”

    Taimoor, apart from that the very basic intention is gain as much as possible before competition get tight. That's a forceful situation from vendors.

  16. Daniel
    December 30, 2013

    “Every company takes time out to make prices competitive where there are many industries churning out the same things. However, in the electronic supply chain, the company has to ensure decent after sales service”

    Tirlapur, these three categories comes when a new product is introducing by a new vendor to the existing market segment. I mean to a competitive market. But when a new product with a new market segment, I mean first product of that category (eg- 3D/4D/5D printers), they can fix the price without considering any factors. There is no competition and later when competition starts, they can reduce the price.

  17. Taimoor Zubar
    December 31, 2013

    “..apart from that the very basic intention is gain as much as possible before competition get tight. That's a forceful situation from vendors.”

    Jacob: Yea that's another reason behind this strategy. Particularly in the case of technological products, companies generally have a patent on the product for a short while such as 5 to 10 years before anyone else is allowed to develop a similar product. This is why they want to capitalize on the time and make as much money as they can before it becomes a common product.

  18. Daniel
    January 1, 2014

    “Yea that's another reason behind this strategy. Particularly in the case of technological products, companies generally have a patent on the product for a short while such as 5 to 10 years before anyone else is allowed to develop a similar product. This is why they want to capitalize on the time and make as much money as they can before it becomes a common product.”

    Taimoor, I think patent is valid for 20 years and thereafter anybody can use it.

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