How to raise your price by adopting a value-led pricing structure
Pricing is a process with the ultimate goal of defining a strategy that will help in maximizing your revenue. A process or strategy is not counted if one picks numbers out of the air or out of the gut. There are three basic strategies that are used to define the process of pricing.
- Cost-plus pricing
Cost-plus is a pricing method in which selling price is set by evaluating the variable costs that are incurred by the company and add a markup to establish the price. This is a pricing strategy that people automatically think of when they think about pricing.
- Competitor-based pricing
This pricing method benchmarks the competitor prices rather than setting a price that is based on the value of the customer or the company cost. For a company starting out in a new industry, a competitor-based pricing strategy seems to be a logical way to go.
- Value-based pricing
It is a strategy in which the selling price is based on a product or service’s price and how much the consumers believe that it may be worth it. This pricing strategy is also called customer-based pricing. You look for pricing information from the people who make a decision depending on your price, i.e., the customers.
What factors have an influence on price?
Some of the markets are more sensitive than others, while price sensitivity can be changed over time based on various factors, including economic changes, competition, or demand. For a company related to Information Technology, factors other than prices like quality, service, and uniqueness can also influence the price sensitivity. The main factors affecting price determination are:
- Product cost
It is the most important factor that affects the price of the product. The price of any product is determined on the basis of the total cost. While launching a new IT product, the sales manager has to make sure the price is below the cost level, but it’s the long run, it is necessary to cover more than the total cost.
- Demand
The consumer demand is more when the price is low and vice-versa. However, when the demand is elastic, then little variation in price result in large changes in the quantity demanded. A firm can charge higher profits in case of inelastic demand.
- Market competition
The nature and degree of competition in the market is an important factor that affects the price. If the competition is low, a firm can fix any price. If the competition is high, the price can be determined on the basis of the price of the competitor’s products, features, and quality, etc.
Six proposal fundamentals you must know to create a valuable proposal
- Summary
The abstract or summary is the most important component of the proposal. It is better for the sales manager to spend time developing the best title possible. Also, give a summary of what will be done, who will do it, how it will be done, and period of time. Also, highlight the problem and who will benefit the outcomes.
2. Statement of need
The sales manager has to mention the issue that is being addressed, and why does it matter. The necessary proposal and the void in knowledge are important factors of the statement of need. It is better to give convincing evidence that the proposing doesn’t duplicate other work.
3. Project activity
Project activity is the reason you chose to address the issue, whether any other approaches are there, and either they are appropriate to the situation or not. The involvement of specific activities needs to be mentioned. Mentioning the specific outcomes of achievement also involves in explaining the project activity.
4. Evaluation
Evaluation is an essential piece that should be qualitative as well as quantitative, provided if the sales manager finds it feasible for the proposal. By outlining clearly the methodology, you will be able to assess the project’s success.
5. Dissemination
The dissemination should be linked to the project goals and objectives. The dissemination plan should target policymakers. You should be able to describe your communication strategy, and being creative is also should be considered.
6. Budget and continuation funding
It is better to show the budget in table form and use the budget narrative to explain each item. Including other sources of funding and an indication of how much the project will cost should also be explained in details.
Why the market rate is a fallacy?
The market rate for any services is the price that is usually charged for them in a free market. If the demand goes high, the organization tends to respond by price increase according to requirements, thus setting a higher market rate. When the demand falls, the market rate also tends to fall.
There are some instances where lies and myths about pricing become part of a company’s culture, so deeply integrated with the business strategy that it hampers any kind of progress regarding the optimal pricing. While it is true that the market has a direct influence on price range, it is a lie that alone sets the final price. The sales managers accompanying the business pricing policy have the means and opportunity to differentiate their services to create value for them. The market price doesn’t mean that you have to accommodate it, rather you need to accommodate your price to the customers is more important. One has to keep in mind that pricing is always based on knowledgeable insights, even though competition costs and price sensitivity in the market have a significant effect.
Importance of designing a sales strategy
Designing a sales strategy has become a very important part of any business. It is done mostly by the individual salespeople, though the design is made by the sales manager, and the manager can always help out the sales department. Setting up the monthly and quarterly targets and ensuring that the manager is really about those targets. The most important part is to make sure that the goals are in line with the plans of the company.
The entire process has got to be transparent so that people in the team get involved can give the desired results. The sales manager can design sales strategies in the following ways:
· Plan the sales process
· Hire people to sell
· Designing of the sales strategy
· Forecast the results
· Analysis of sales efforts
Raising prices without losing a customer
While it is known facts that rise in price is normally good news for growing business, it is not always well received by the customers, especially the early adopters and advocates who helped in the rise of the company. There are a few fundamentals that need to be kept in mind when raising prices.
- Sell on value, not price
You have to understand the fact that your IT products are quite valuable. Selling on value and not price involves a balance of confidence, rapport, and doing homework. It has become more difficult, though, as technology gives consumers greater access to the price information and competitors.
- Choose the targets wisely
Many companies often make one big mistake that actually forces them to compromise on price. These companies don’t narrow the target market and don’t have an understanding that their products aren’t likely for everyone. Research for a potential client and see if they are good candidates to meet your price needs. This actually saves the waste of time by talking to the people who only want the cheapest deals.
- Leverage on strengths and experiences
While having a sales meeting with the potential client, it is better to stiffen your backbone and show the full weight of the company’s strengths. This basically comes from sales skills, but you can educate your team on how your company stands out. You should also inform the potential client about your company’s history, which helps in building confidence in the product by showing documenting testimonials from past success and show them the opportunities for the future.
- Emphasize customer service
The toughest job selling value to customers is making them understand the full depth and breadth of everything your company offers. It is very important to make sure to keep providing good service to the customer. This will help in piling up customer testimonials that can be used to show future client’s reasons for providing the right value.
