Five P's: Pricing Priorities

Fully understanding the five P’s of marketing can be a great competitive advantage for your firm over the long run. Building off our foundational understanding of the importance of having the right product is the importance of fully understanding the price you set.

The price communicates a lot more than we often give it credit for. A higher price communicates an allure of quality as well as a sense of exclusivity which, when used strategically, can greatly benefit certain businesses. On the other hand, setting prices low communicates value and a bargain deal which can often lead to greater sales volume and the positioning as a more “humble” brand. There is more to price than just this though, many levers can be used to tell customers how they should view your products and by extension, your brand.

Discounting

Discounting and price matching tactics provide a competitive edge when looking to gain market share. Especially when your firm has not yet built up a reputation as a high-quality brand these methods are especially potent.

By allowing customers to see your list price you can communicate your intention to be a high-quality brand as well as set expectations for how they should value your goods or services. These market penetrating tactics should be used very carefully though as overuse can lead to people viewing you as being manipulative with your prices. We all know stores that will have a list price posted but the goods are always heavily discounted, leading to short term success but long-term challenges in communicating brand value.

There are notable exceptions here though, some firms will choose a strategy of being a discount products store and that is quite successful in certain segments of the market. A focus on providing high quality products at a low cost has propelled many firms to greatness but we will caution that once this strategy is chosen it is hard to pivot to a more “premium” type of brand. These low-price firms often focus on operational excellence in order to keep costs low and increase the volume of product they move.

Payment Acceptance

Terms used to accept payments can also be a part of your strategic plan. For example, a firm that focuses on accepting only cash has the luxury of receiving payment immediately upon receipt of their sale. While this is certainly an ideal situation from a cash flow perspective we find these firms run the risk of missing out on customers who do not have the cash on hand. The most successful firms often choose to accept payment on various credit terms.

By giving your customers a defined window in which they can pay for the good or service you are allowing them the manage their cash flows as well as pay overtime. Leveraging this option is great for the customer but can lead to challenges for the business if they themselves have limited credit options. Often clients seem to choose a mixture of payment methods or a “whatever is best” approach with their customers.

We would encourage the payment terms for credit deals to be flexible though and bend based on the type of firm you are dealing with. For example, when dealing with a newer firm who doesn’t have a proven track record with your company, we would advise shorter payment windows (ie net 30) where as for firms you have a longstanding relationship longer windows can show trust and build the relationship.

All in all, price is an important part of setting your business strategy and determining which customers you are positioned to serve. Choosing a pricing strategy and payment acceptance methodology will be a foundational step for your business so we advise you cautiously consider your options before committing to a method. Think about what pricing strategy will work best for your firm, we would love to hear what you decide and how you came to that decision!