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Ewan Watt

Posted by Ewan Watt

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Lower or raise your prices? ROI.com.au experience share

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AT ROI.COM.AU we are fortunate to work with a diverse range of businesses and have been exposed to a huge variety of marketing campaigns.

So when it comes to pricing, we may not have the Harvard economics business degree, but we have some amazing first-hand knowledge of what pricing models work in different situations and markets in Australia.

The facts are:

  1. Most of our clients face the challenge of competitors offering lower prices
  2. Most industries are competing against more companies locally and globally
  3. Most global companies have far more scale than Australian businesses
“Most businesses are nervous about putting up our prices” … before you leap

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Understanding the numbers – The Net Impact of a 25% Discount

If your price per unit is $100 with a 25% margin; therefore the cost per unit is $75. The initial profit for selling 100 units is $2500. With a 12 % decrease in price, you now need to sell 200 units (+100% of sales volume) in order to make the same profit.

Is doubling sales realistic?

Marketing case studies about big brands like Coca-Cola demonstrate price elasticity and how lowering prices can significantly grow sales of big brands through major retail channels. I have seen this first-hand with other major brands such as Yahoo USA as well as major Australian retailers, but this is based on the company’s ability to reach a large audience cost effectively.

Our experience with small to medium business lowering prices on many occasions has been the opposite. The result:

  • Increased advertising spend
  • Minimal increase in the volume of new customers
  • Reach non-profitable and non-loyal customers
  • At times,reduced sales in B2B marketplace
  • Value proposition and brand compromised

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On the flipside we have helped many of our clients increase prices and value per customer by:

  • Creating a new segment in their market, website, product/service offering
  • Differentiate service; charging premium for express or fast response times
  • Personalise offering and follow up online sales with telephone service contact
  • Increase prices to deter non-profitable customers
  • Build brand reputation through higher cost-per-hour
  • Interactive suggestive sell based on user or purchase behaviour

Not sure if your business can charge higher prices or reach higher value customers?

Every business has the ability to grow beyond just increasing the number of customers through more leads and traffic.

Other growth drivers include:

  • Increasing value per customer
  • Increasing loyalty of customer
  • Increasing conversion rate
  • Increasing profit per customer

Pricing strategy should focus on how you retain your customers rather than price alone. Just because a competitor has lowered price does not necessarily mean you should follow suit, understanding why price was lowered is critical. Concentrate on why customers should buy from you rather than the competition, so factors such as relationship building, quality of service, knowledge of client’s business and needs etc. come into the equation.

The Internet is a dynamic medium; it is easy and quick to create new landing pages, test new price points before you make any big decisions. This style of approach can be very effective at testing new ideas, price points, value propositions with low investment and risk.

Want to share your experiences or feedback on your current marketing strategy?

We are here to help.

Thanks for reading.