Price Optimisation: A small tweak in price, big gain in revenue

When it comes to price changes, the management is usually divided in two camps. One group believes that a price increase is justified because the product offers superior value. They are usually in minority. The other group, opposes any price increase.  

They are not unreasonable. There is always a chance that with any price rise customers will desert them or the competition will take advantage by introducing price cuts.

However, with increasing cost pressure and competitive intensity, it is foolhardy to not explore price optimisation for increase in profits.  

Price optimisation does not mean only a price increase. In fact, most often is a mix of selective price increase and decrease.

What is Pricing Optimisation?  Price Optimisation is a scientific study of consumer’s willingness to pay for a product given all the options available to her. Based on this information, the pricing manager can decide his course of action with a reasonable confidence.

How is it done? One of the first data points that we evaluate is the end customer’s price perception.

Is the price of the product under study considered too expensive by the buyer? Or is she indifferent about it. How is this product’s value viewed in comparison to its nearest alternative?

The data collected from the market  when combined with internal sales and service data is used to simulate buyer’s decision making.

The analysis differs based on the market dynamics of our clients. For example a client in a B2B market versus a consumer market would face vary different buyers. While a B2B buyer has an objective price performance criteria, a B2C buyer uses a lot of mental shortcuts. Our analysis unearths these nuances.

How does it help the clients?  At the end of the study we  provide our clients with suggested changes in price. These suggested changes differ by products, geographies and channels.

We ensure that the proposed price changes are in line with the client’s strategy and brand positioning. We also take a game theoristic view of possible competitor’s moves in response to client’s price changes.

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