The correct pricing strategy can help maintain your sales and profits. Hence, it’s crucial to consider relevant aspects like data and market insights, competitors, proactive implementation of optimal prices and the like.

‍

A weak pricing strategy will not only cause margin leakage and reduced profitability but will also hurt your competitiveness and trigger lost sales. Therefore, in this blog, we will point out the top 6 pricing errors that businesses need to avoid in order to create a sustainable pricing strategy.

‍

‍

1. Lacking Relevant Macro and Micro Data

‍

Pricing strategy requires accurate and up-to-date information about market conditions, customer segments, and the cost of goods sold. Without these aspects, businesses may not be able to make informed decisions regarding pricing.

‍

Macro data refers to large-scale data that provides information about the overall market, such as economic and geographical trends, consumer behaviour, etc. Microdata, on the other hand, refers to data regarding specific customers, such as their purchasing behaviour, preferences, and willingness to pay.

‍

Without access to this data, companies may struggle to understand the market and their customers. For instance, without access to macro data, a business may not be aware of changes in consumer behaviour or economic conditions that may impact its pricing strategy. Likewise, without access to microdata, the business may not be able to segment its market effectively or understand the value it provides to customers. To understand such pricing mistakes, let’s take a deeper dive into these aspects.

‍

• Not considering the Cost of Goods Sold (COGS)

One of the most common pricing errors is not considering the cost of goods sold (COGS) when setting prices. COGS include all the direct costs associated with producing a product or service, such as raw materials, labour, and overhead costs. If a business sets its prices too low, it may not be able to cover its COGS, leading to a loss of profit margins.

On the other hand, if prices are set too high, the business may be missing out on potential sales. Therefore, it is essential to calculate the COGS accurately and set prices that cover these costs while still being competitive.

‍

• Ignoring market conditions

Market conditions play a significant role in determining prices. Businesses must stay informed about changes in the market and adjust their pricing strategies accordingly. For example, during an economic downturn, it may be necessary to lower prices to remain competitive, while during an economic boom, companies can raise prices. Failing to take market conditions into account can lead to missed opportunities or lost sales.

‍

• Underestimating the value of a product or service

Another pricing mistake is underestimating the value of the product or service. A business may believe that a lower price will attract more customers, but not always is this profitable.

In some situations, customers are willing to pay a premium for a high-quality product or service. Hence, making customers understand the value that the product provides and setting prices accurately helps drive more profits.

‍

• Failing to segment the market

One of the more common pricing errors is not segmenting the market strategically. Different customers have different needs and are willing to pay differently for your products. So, it is vital to segment the market and tailor pricing strategies to different customer segments.

For example, businesses can offer lower prices to price-sensitive customers and higher prices to customers who are willing to pay for added value. Failing to segment the market can lead to lost sales or reduced profit margins.

‍

‍

2. Relying on Gut-Feeling to make Decisions

‍

Assuming prices, without considering all relevant factors, is one of the repeated and habitual pricing errors that managers make. This process can result in setting prices that are too high or too low, leading to either margin leakage or reduced profitability.

Moreover, prices based on gut feeling are inaccurate as they may be prone to multiple human errors. Also, the factors that managers consider to determine prices are not always enough.  

‍

For instance, if a business assumes that its prices should be the same as its competitors' prices, it may be missing out on potential profits. If the business's cost of goods sold is lower than its competitors, it could potentially set its prices lower and still make a profit and vice versa.

‍

Besides costs and competition, businesses must also consider market conditions, customer segments, and their key value items. For example, if the market is highly competitive, businesses may need to lower their prices to remain competitive and attract price-sensitive customers. On the other hand, if the business offers unique products or services that provide higher value to customers, it may be able to charge a premium price.

‍

‍

3. Trusting Inefficient Manual Processes

‍

‍

‍

Today, if a business still uses manual processes to gather and analyse data, it may be challenging to make informed pricing decisions in a timely manner.

Spreadsheets and manual research fail to provide real-time data about market conditions, competitor pricing, and customer behaviour. This makes businesses fail to respond to changes quickly and lose either profits or sales to their competition. Moreover, manual processes are prone to errors and inaccuracies leading to incorrect pricing decisions and therefore, resulting in margin leakage or revenue leakage.

To avoid these negative impacts, businesses should consider using technology to automate their pricing processes and to access real-time data about market conditions, competitor pricing, and customer behaviour. By leveraging technology, businesses can make informed decisions about pricing quickly and effectively and achieve long-term success.

Hence, companies need to dodge such time-consuming and labour-intensive processes in order to develop a sustainable pricing strategy and thereby increase profit margins. This helps businesses to scale their pricing and remain competitive in the market.

‍

‍

4. Failing to Align the Team to the Pricing Strategy

‍

If the team is not aligned with the pricing strategy, it can lead to confusion, miscommunication, and inconsistent implementation, which can negatively impact profit margins. This is one of the most common pricing errors that higher management makes, resulting in dire consequences in the long run.

‍

If the sales team isn’t aware of the pricing strategy or is not fully committed to it, they may not effectively communicate the value of the business's products or services to customers. This can result in missed sales opportunities, lower prices, and reduced profitability.

‍

Similarly, if customer service teams are not aligned with the pricing strategy, they may not effectively handle customer inquiries or objections, leading to confusion and lost sales.

‍

Failing to align team members with their strategy can lead to inconsistent implementation and a lack of accountability. This can result in varying prices for the same product or service, which can damage the business's reputation and lead to reduced profitability and margin leakage.

‍

‍

5. Not Leveraging Innovative Price Optimisation Tools

‍

Not considering the use of pricing software while developing a pricing strategy can have a negative impact on profit margins. Pricing software can provide businesses with real-time data and insights about market conditions, consumer behaviour, and competitor pricing, which can help them to make informed decisions about pricing.

‍

Manual processes for gathering and analysing data about market conditions, consumer behaviour, and competitor pricing can be time-consuming, prone to errors, and limited in scale. This can make it difficult for businesses to make informed decisions about pricing in a timely manner and to respond to changes in the market. In addition, manual processes can limit a business's ability to scale its pricing strategy, which can limit its potential for growth and profitability.

‍

Dynamic pricing is one of the strategies that involves leveraging the real-time market scenario and suggesting optimal prices multiple times depending upon the pace of market shifts. It refers to the practice of adjusting prices based on real-time market conditions.

‍

For example, a business might raise prices during peak demand or lower prices during slow periods. This type of pricing strategy can help businesses optimise profits and remain competitive. Failing to use dynamic pricing can lead to missed opportunities or lost sales.

‍

Pricing platforms are the future of pricing. They can automate the process of gathering and analysing data and provide businesses with real-time insights. This can help businesses to make informed decisions about pricing quickly and effectively and to respond to changes in the market in real time. Additionally, pricing software can help businesses to scale their pricing strategies, which can increase their potential for growth and profitability.

‍

‍

6. Failing to Consider Competitors in the Market

‍

Another common pricing mistake is ignoring the different pricing strategies of competitors and tallying them with other market factors to determine the right price. The prices, discounts and promotions, and offerings of competitors can provide valuable insights into the market, customer reaction to those strategies, and general market conditions.

Moreover, your business can use this information to make its own pricing decisions, establish a competitive strategy, and increase profit margins.

‍

To conclude, avoiding these 6 common pricing errors can not only help you avoid margin leakage but also increase profit margins in the long term. Better yet, you can consider an AI pricing platform like SYMSON to do all this tedious research and manual tasks at a glance. With such technology, you not only automate these repetitive tasks but also free yourself and your team to focus on more crucial aspects of a business. You can also check out whether your business needs AI pricing software or not if there are any lingering doubts and you seek to know more.

‍