Pricing mistake is quite common. As an example, companies may sell different product lines, but they tend to implement similar profit margin for all of them. However, this can be a mistake, because if you have disparate product lines, then it means that you need to implement different pricing for each line. It won’t work well if you insist on implementing iron law of pricing. Each product line has different value that can be given to customers. Profit should reflect on the willingness of the customers to pay and this also relates on the actual value that consumers perceive. So it means that pricing of a product line will be irrelevant to the pricing of other product lines. Problems can also happen if you fail to accurately segment customers. Customer segmentation is based on results of market research. Each segment has significant characteristics that can’t be found on other segments. A different segment can have differences on how products are designed, packaged, delivered and marketed.
It is also a mistake when you maintain similar prices for far too long. This could happen when you ignore changes in customers’ preferences, competitive environment and overall costs. Another cause is that companies don’t want to endure the uproar caused by price changes. Savvy sellers accustom customers with regular increases in values and corresponding price increases. When price has been changed, consumers should think that it’s acceptable. Whatever you do, it is important for you to make sure that customer perception is still higher than the pricing. When you have changes in perceived values, than you need to adjust pricing based on these changes. It’s another mistake to change prices without considering how competitors will react to it. When you change your prices, competitors may react to it. In fact, you should predict multiple scenarios on the possible reactions of competitors. It is true that lowering your prices will drive sales volume, but it may mean that you will provoke competitors.
Problems could when you allocate insufficient resources when you manage pricing practices. Basic variables used in calculating profit include costs and sales volume. Cost reduction initiatives are essential if you want to make sure that your pricing remains competitive. You need to use pricing as a tool to grow your sales volume. With highly sophisticated procedures, it is possible for your to control you costs in real time and in minute detail. In terms of business operation, pricing can be of outmost experience. Good pricing strategy should include hard data generated by proven methods, including Van Westendorp’s Price Sensitivity Meter, Conjoint Analysis and Value Attribute Positioning. You also need to obtain enough data on the actual perceived value of products. It means that managers are able to effectively maximize profits by proper price optimization. Another problem is if you don’t establish effective procedures to proper optimize prices. Your pricing strategy should serve the most profitable customers. In many cases, 75 percent of your revenue come from 25 percent of customers.