Austere times suppress spending even in the face of no change in inherent demand for a good or service. How do your sales change as you raise or lower pricing?
How cyclical is your business? What discounts or premiums are built into the pattern of your cycle?
A cohesive pricing strategy with fine tuned price adjustments can help your business nuture demand into sales with retention of as much revenue as possible. All too often price adjustments are made on an across the board basis. Flatline pricing adjustments both produce the least optimal financial result for a given level of change and indicate a deficiency of either understanding the market or the capacity to execute skillfully.
The plot below gives a visual image to the dynamics of demanded capacity (1.0 equals sold out) at various pricing levels (1.0 is the average price of the standard product) across a multi-tiered product line (Economy through Deluxe).
The darkest green is the highest demand. The mountain ridge going from bottom-left to upper-right reflects the nature of lower prices for economy products and premiums for deluxe products.
A key learning from this study was that the standard plus product (ST3) was over-priced. Priced correctly it should equal or exceed the demand for the standard product.
An additional learning was the inferiority of the economy product, as no level of discounting seem to generate demands equivalent to the standard product. here the solution would be either improvement to the product or shedding of capacity depending upon which made more sense.
To read the full story of this specific applied pricing strategy and its ability to support a purposeful and succesful effort to raise revenues just click on the link for On The Case.
For more information on Metamorphosis Consultant and author Patrick O’Shei, click here.