Business Sphere

     To increase your revenue and profit, sooner or later you will have to raise prices. After all, pricing is the most powerful strategy known to business. Price high and you will earn high, is the motto of many business owners.

     Sometimes, however, a company that raises the price of its products and services may even incur losses. Why? Because your competitors may try to bolster their own revenues in other ways other than pricing, like product differentiation and fast and efficient service that add to the customers.

     In his book Sales & Marketing Management, author Allan J. Magrath shares some relevant insights about pricing, as follows:

     1. Pricing strategy has to be tied to your market share strategy. When you price your products or services you always have to think about your market share strategy. Once you decide to hang on to share, you usually have to decide whether you lose money until you can improve your margins and get your customers back.

     2. Pricing must always involve your cost. In pricing your products or services, you must know your cost of producing them, the cost of sales, marketing, distribution, and you have to factor in your desired profit.

     3. Pricing strategy must consider the price of your competitors. You cannot just set your price by whims, you must study first your competitors and their prices for similar products and services. Otherwise, your customers will go to your competitors.

     4. Price increases require continuous investment in brand equity. High brand equity means customers will continue to buy even though you may raise prices. To keep brand equity high, position your product consistently so that consumers know exactly what to expect when they buy the product or service. In addition, reinforce familiar associations that people are comfortable with and then consistently reinforce them. Then, deliver on the promises you make. The product must look, feel, and work according to the way the customer thinks of it.

     Pricing is always a factor in generating revenue and profit. But before raising prices, it is important first to consider the preceding truths about pricing to avoid the pitfalls and dangers attendant to it.