That equals big growth. Every pricing structure begins with a pricing objective. You might expect to see written below a whole host of pricing strategy buzzwords: penetration pricing, price skimming , product line pricing. However, a pricing strategy is not the same as a pricing structure.
Involves your whole approach to pricing across your company but with a specific emphasis on how your pricing relates to the features of your product being made available and how it affects customer use of your product.
Less concerned with your customers than it is with the competitiveness of your product in the market. Even with original products that have value, you will almost certainly have competition in the market. Pricing strategy concerns the method of setting your price points in a way that establishes your product as competitive in the eyes of potential buyers.
Unsurprisingly, the terms are related. You can find out more about pricing strategy here. A good pricing structure can do both. Cornering your market share has a lot to do with understanding how your product features appeal to your buyer personas. Developing a crack product pricing strategy requires knowing just who finds your product appealing.
It strongly influences the way your customer will perceive the value of your business. It repels those who are likely to cancel a month after signing up upon discovering that they need something else. Below is the pricing page for Hubstaff. The page clearly shows what features are available in which tier. They have a very wide user base, so a little more explanation on how each tier could benefit each potential buyer persona would make this already-effective demonstration of their pricing structure even more appealing.
Plus, a clear pricing structure that lets your buyer know exactly what to expect makes onboarding — one of the most high-risk stages of the customer journey — go smoothly.
Think of a good pricing structure as an anti-churn device! You might see a chart in the shape of a delicious pastry-based dessert. ProfitWell sees only missed opportunity. Compiled from a study of 10, blog posts across hundreds of SaaS companies. Finding the right pricing structure will pay off big time. The average SaaS company spends less than 10 hours updating its pricing every year — but more time invested in pricing can give you huge returns.
Again, pricing structures are all about objectives. Here are some examples of tried-and-true frameworks. Regardless of the individual needs of customer types, your product will be sold at the same rate to anyone who wishes to subscribe. It is, however, hard to tap the value that comes from serving different customers with different willingness-to-pay and different feature needs, if customers have no choice but to opt-in for everything from the word go.
As a high-end provider, your market size is typically more limited than it is for a lower-priced operation. This is because the amount of people who can afford products at top-end prices is smaller than the amount who can get in at lower or mid-range price points.
Some companies are niche providers and target smaller markets. Mass-market providers often rely on low costs of goods sold and pass on low prices to a large marketplace. Without a pricing strategy or structure, it is hard to be consistent in your approach. This negatively affects attempts to build a brand image.
If you randomly price products at various levels, customers can't easily detect whether your brand is targeting them. Additionally, it is hard for company leaders to accurately project revenue and budgets if pricing is more random than structured and coordinated. Along with marketing effects, pricing strategy affects your bottom-line performance.
A single sale at a higher price brings more revenue than selling the same good at a lower price. We would estimate that:. More often than not, businesses without a well thought through pricing structures lose margin by excessively discounting or crudely enforced cost-plus pricing. This is not really the case at all.
A segmented or tiered pricing structure is a great way for sales teams to charge different prices to different customers and for different amounts without over-charging or underselling an item or bundle. Airlines pricing teams have long employed a segmented price structure similar to a hotel pricing structure. A segmented pricing structure enables airlines to maximise the revenue they can earn from different customers based on capacity utilisation and yield management.
The pricing structure for an industrial equipment and engineering company, conversely, derives much of its revenue from winning bids and tenders and renewing high value and volume contracts. A key benefit of a segmented price structure is that it encourages customers to pay a price aligned with the value perceived value different customer groups place on a product or service using concepts such as value at use and value at risk concepts.
Wholesale electricity pricing structures are another interesting example of pricing structures redesign. Typically, a n electricity pricing structure is designed around complex cost structures.
Things like their cost of operations, including the fuels used by power plants to meet the demand for electricity. A time fence in a price structure is used by electricity businesses to encourage customers to buy in off-peak hours or when the business needs to balance or utilise capacity or prevent outages.
However, because most energy operations still exist within a system-wide wholesale market, price signals tend to be aggregated and pricing is still fundamentally fixed. This often limits price-setting because customer invoice pricing tends to be fixed too with only off-peak pricing exceptions. In the past couple of years, however, there has been a wide-scale disruption in the electricity market and the concept of optimising based on demand is being scientifically tested and trialled. In New York City, for example, local government and private business are working with consultants to design a smarter market.
These changes are also changing perceptions of value in the energy market and more importantly, willingness to pay and price setting practices. It will include wholesale energy and alternative sources. A major driver for introducing dynamic pricing in the electricity and fuels market is that the cost to produce energy is decreasing.
The cost of production will decrease even more with streamlined production and consistent into a dynamic, centralised grid. It will not be commercially viable for authorities and private businesses to set customer pricing based on their costs anymore.
A centralised grid system will inevitably enable pricing and operations teams to identify more revenue and margin opportunities and operational inefficiencies than ever before:. And, of course, people will finally get the cleaner energy they want and even in remote locations. Re-designing a pricing structure for complex markets, like the energies example discussed above will involve complex pricing work.
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