Using relevant, accurate information to inform your business’ pricing strategy is key to its success. Proper data analytics as the foundation of your strategy allows a company to see how pricing fits into the bigger picture and helps you determine which factors influence your pricing and when it’s time to make a change.
There are three common pricing strategies:
Cost plus pricing
This simple pricing strategy sets prices as a percentage above costs. A company adds up all the costs associated with providing that product or service, adds the profit margin that they’re looking for, and they have a pricing strategy. Not much data analysis goes into this strategy.
This strategy is challenging to manage as a company grows, because costs rarely remain static. If the cost of one supply that’s necessary for business to continue increases, the profit margin decreases. Adding a solution that includes data analytics would help with this as it would alert the business owner as soon as profit margins drop below a pre-set level.
Competitor based pricing
This involves setting a pricing strategy based on the pricing of competing products/services. This strategy can use data analytics for modelling to help determine the volume of product/services they need to produce in order to receive the preferred rate.
The problem with this strategy is that is ignores the unique needs and benefits of your company. Creating your own strategy independent of your competitors’ helps you focus on improving your offering and adding value for your customers.
Value based pricing
This strategy involves looking at customers rather than competitors and setting prices based on how much they are willing to pay. It involves a deep understanding of your customers’ wants and needs and offering top value and a low price. Gaining this understanding is largely based on data analytics.
This strategy helps companies increase their prices as they innovate their products, because they already know what their customers are willing to pay for added features/improvements, but it also takes a lot of time and research to gain intimate knowledge of your customer-base.
Using data to decide
Data analytics helps companies increase their profits by setting ideal pricing strategies that help them bring in more business and provide unique value. Using analytics to set a pricing strategy helps empowers leaders to use data to learn and analyze every factor that impacts a company’s profits, whether those factors are internal or external.
ERP Advisers can help your company leverage data analytics to set a pricing strategy and increase profits. Click here to set up a call.