As we had previously developed in a report, the price is usually a variable adjustable by the cost that implies the development of the product or service plus the expected profit margin, however we learned that it is a great mistake to rely only on these two aspects to establish the pricing strategy.
To remember
The following aspects are necessary to take into account when establishing a price trading strategy in a stable global scenario.
- Competitive price, that is, the price of competitors against the same product. Substitute price is the price of products that can replace the use of a similar product. Perceived price is the price that the final consumer would be willing to pay in relation to the perceived value of the product or service.
The price strategy must be consistent with the positioning strategy, while if it is of quality, the price must be higher than the average, and if it is a massive strategy, then the price must be lower than the average and the business will obtain profits as long as it sells enough volume.
Changing global scenario
Once the pricing strategy to follow has been established, what happens if the rules of the game change, something that happens often in the Argentine socioeconomic field.
When you experience a stage of inflation (sustained and prolonged increase in prices), the general feeling is "everything is expensive", so if in the face of this situation the fear of losing the market makes us not adjust prices based on the inflationary escalation serious financial and economic drawbacks will occur in the long term, since after a certain limit you will start working at a loss because when selling at a low price you will not be able to replace the raw material for the next production, and also the business strategy is confused, because It can be perceived as very low cost and related to low quality.
In mass consumption products, the price is usually a data that the market gives us. In this case, only the cost variable can be analyzed and adjusted, because if it is not achieved that it is lower than the “price data”, the business will no longer be viable.
This concludes that an analytical variable is added for the revision of prices on a periodic basis, in addition to shortening the time.
The steps to follow
- Reassessment of costs Constant observation of competitors Do not underestimate the client's perception of the price-quality ratio Analysis of the growth of the sector where the product or service is used
The variable that is added is the "sector analysis", there are sources of information about how the activities of a sector behave and how the activities that complement and replace the sector move. Investigating on the Internet is essential when establishing such information.
It is essential to update the price list of the inputs (raw material, energy, freight, labor cost, etc.) immediately after the end of the month, in order to reevaluate the cost of the finished and sold product.
Once the cost analysis has been carried out, conclude:
a) if the company won or lost in the closed month
b) what remedies to apply for the month that begins
These suggestions conclude that prices should be reevaluated on a “monthly” basis, unlike in situations of stability, which are sufficient on a quarterly basis.
Specific strategy
A specific strategy is not to touch the net price of a product but the quantity of the packaging. In this way, the client will appreciate the same price but will buy less quantity. In addition, many times it is often bought in excess because that is how the packaging comes. This contribution is not applicable for all types of products or services, however it is very interesting when it comes to achieving loyalty.
