Planning firms are struggling with the rising costs of running a business, including increased reforms as well as everyday inputs such as fuel and electricity.
Accounting firm RSM Bird Cameron offers some tips on how a better pricing strategy can help stay ahead of these increasing costs. The strategy needs to be flexible, regularly reviewed and adjusted quickly if you want to recover cost increases, says national head of business solutions Andrew Graham.
He says that, “No matter what pricing strategy a business adopts, remaining transparent and communicating with customers about the need for price changes is critical.”
Four pricing strategies to improve profitability:
1. Know your costs but associate your price with added value: A “cost plus margin” pricing model gives you less room to adjust prices in a competitive market. However, a stronger perception of value in a customer’s mind gives you more potential for increasing prices. Understand the value of what you are offering and the dynamics of your market as well as your key differentiators. Additional costs can sometimes be absorbed by bundling your offering differently or introducing separate charges for some transactions.
2. Revise price regularly to reflect market changes: Firms that are not flexible or responsive to changing industry conditions and market forces feel the impact first. Regularly monitor key indicators that influence your profit, to ensure that the prices you charge maintain your margin. When costs change, communicate these openly and build support for price increases. The more customers understand your cost pressures the less shocked they will be by price changes particularly when you want to maintain current service quality levels.
3. Keep other marketing elements current and up-to-date: Your reputation, image and branding should send a strong signal that reinforces your price. If your image reflects high quality, customers will expect to pay more.
4. Vary price for different market segments: Some segments will place a higher value on your service than others. Their perception of value will be determined by the need for convenience, what the service actually means to them and how important it is to meeting their needs. Where the perception of value is high you can look at charging higher prices. Also be aware of “over servicing” particularly where customers are not prepared to pay for additional things they don’t want.
How effective is your pricing strategy and do you find these tips useful? Share your thoughts below