Business, Economics

Is Your Pricing Leaving Money On The Table?

Determining the value that people place on what you do or sell isn’t easy.  Setting a price that is too high helps your competition, yet setting your price too low leaves money on the table and possibly a LOT of money — a 5% increase in price can be huge in many businesses.  Recent research from Paul Hague & Matthew Harrison shows that many companies actually undervalue the products and services they sell.

Hague & Harrison suggest that leaving pricing to your sales team tends to lead to problems and undervaluation.  Why? Because lower prices are easier for the sales staff.  This makes sense: it is advantageous for your sales team, but not ideal for your bottom line.  The study outlines the three research techniques that can be used effectively to determine the perceived valuation of your product by your customers.  They are listed below:

  1. Simple Point Spend – presents the buyer with a list of the benefits and ask him to indicate their relative importance by spending a number of points according to which are most valued. This technique is somewhat limited because buyers don’t actually use this line of reasoning when purchasing (even though they probably should!).
  2. Conjoint analysis – a trade-off model in which respondents compare different offerings and choose between them. This method can be revealing but tends to be complex and difficult to employ, requiring a large sample size.
  3. SIMALTO analysis – a list is made of the many attributes which are considered in an offering. This can include product features as well as service and delivery features. For each of these attributes different levels are described, showing basic levels to the left and improved and better levels to the right.Your customers choose which of the attributes down the left-hand side of the grid are important when buying. For each of these, what level they are currently receiving (columns 1 to 4). Next they are asked what level they would like to receive. Finally, the customer is given a number of points to “spend”to indicate how much they would like to receive the improvement that would move them from what they currently receive to their ideal. The grid has numbers in the bottom of each square from 0 to 15 which indicate the ‘cost’ of moving up a level. Each movement up a level costs the respondent 5 points. With only limited points to spend, respondents have to choose what improvements they really want. This trade-off gives a utility or value to the different levels of the attributes.