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    Meissner Research Group

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    Meissner Research Group — Operations Strategy and Pricing Management Blog

    Pricing Strategies for the Upturn

    January 4th, 2010 by Joern Meissner

    Depending on which politicians and pundits you listen to, they will tell you that at the beginning of this new decade, the economic recovery has not only started; it has happened. Whether or not you believe them doesn’t matter. At the beginning of this new year, you and your company are going to face an upturn as the market slowly pulls itself from the recession.

    Now that your company has survived the recession, your pricing will have to reflect the new market. As an executive, you must become your company’s watchdog, keeping an eye on the market, your product, and your company, all to discover exactly where your price point should be. Here are several ideas to keep you and your company in the black in the coming upturn.

    1. Don’t Jump the Gun

      This isn’t the free-for-all market economy anymore. After the recession, customers are still weary of big, corporate business and are just as likely to walk over to your competitor as they were before (and during) the recession. If you lowered your price point in a price war to survive the recession, you’re still stuck with that price point. Price points rarely rise after they’ve been lowered for any amount of time, even if the market (or inflation) shows they should be raised. The one thing customers hate even more than faulty products are rising prices, and if you think you can return to pre-recession pricing, your customers will disappear more quickly then they did during the recession. You will need to be careful and if you feel there is resistance to accept a price increase, you might consider introducing an improved version of your product and phasing out the old one.

    2. The Market Still Fluctuates

      The thing about our current market era is that everything changes and will be likely to continue to change until further notice. Every day is a new battle. The coming months, overall, will be marked by a slow rise of growth. But the stability in that growth hasn’t happened yet. We no longer live in a period of continual growth, and your pricing should reflect that. Just because your profits are up last quarter thanks to a boost in holiday sales, doesn’t mean that your market is back to what it used to be (or even close to what is used to be). Any particular market could still come crashing down. Be wary that data about consumer demand, such as elasticity, might be outdated faster than you would wish, and customer preferences can quickly shift. As such, it is important that you run constant price trials to be ahead in these time of change.

      Resting on your laurels will only lead to frustration and money loss. As the executive, it is your job to watch the market and predict when the rises and the falls will happen. And then price accordingly.

    3. The New Pricing

      Throw away old ideas about price wars and simply having the lowest price. Customers, themselves having survived a recession just like your company, are smarter and far more savvy than they used to be. Instead of creating a price war that is bad for everyone but the customer, take your services and your products and find new ways to market and price them.

      The first step is to keep your existing customers. In a scramble for new customers that may have more extra capital then they did six months ago, don’t forget about the people who got you through the recession. Look for reasons why they stayed with your company and reward them with services and products that reflect those reasons. If you’re an internet and telephone company and your customers chose you over a competitor because you promised them a free phone line for signing up, then give them that free line for another year if they decide to stay. Keeping these core customers should be priority one.

      For new customers, add tangible value to your offerings. Instead of raising the price on your old products and services, add new services, upgraded products, or something else that the customer can actually see as being beneficial to them. Once a customer sees the benefit in your offerings, they will be more than happy to pay a higher price. Just remember to offer these new deals to your old customers, as well.

    Essentially, creating a healthy profit from the upturn is as much a challenge as surviving the recession. As the executive, you must take responsibility for your prices and be aware of everything that happens in your market. The market is in flux, and while your prices can’t be constantly changing to reflect that, your pricing strategy must. Be prepared to implement a new strategy the moment the previous one no longer works. By doing so, you’ll create a precedent that will help your company take advantage of the upturn and generate more profits. The market fluctuations might even offer a rare chance for well-prepared pricing managers to get a greater market share without compromising profitability.

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    Pricing Strategies during a Recession

    September 18th, 2009 by Joern Meissner

    Pricing strategies to thrive in the continuing market downtown.

    In the current recession, top executives are called upon to make tough decisions to find a quick turnaround for sliding profit margins and reduced sales. And while sale prices, gimmick promotions, and free giveaways might stir up business in the short term, they may also cause long term damage to your company’s image and brand. Executives need to remember that pricing on value, instead of on costs, competition, or even those frugal recession era customers, can reap the largest benefits for their companies.

    1. Don’t Slash Prices for a Quick Buck.

    Since customers during the recession are looking for the cheapest prices, even going so far as to haggle when they wouldn’t have dared before, businesses are quick to drop prices in hopes of retaining these customers and perhaps even creating new ones. And while the price cutting might lead to short-term increased revenue, it can also create a bidding war that will devastate your future pricing. The prices will drop so far, so fast, that even if you got the sale, you’ll be so far beneath your profit margin that it you’re essentially paying for part of the product yourself.

    2. Don’t Ruin Your Brand Name.

    Any marketing specialist will tell you that branding is essential to a business’s long-term success. You’ve worked for years to develop your company’s brand, to instill confidence in your products, and to create lifelong customers. If customers suddenly see you dropping prices, they will start to doubt the value of your products, even if nothing has changed. In the eyes of a customer, if your product becomes cheap, so does your brand. To keep your prices where they should, remember that what is unique about your company. Give the customers detailed descriptions of the value of your products, and they’ll remember why they started buying from you in the first place.

    3. Luxury Items and Services Are Just That – A Luxury.

    Just because the economy is tanking and the recession is continuing doesn’t mean that your high end items should suddenly be sold at Wal-Mart. If you’re going to reduce prices on some items, thereby reducing their inherent value in the customers’ eyes, then reduce the prices of your lower quality products. The customers who want cheap prices will find cheaper alternatives no matter what you do, but your loyal customers, who expect a high level of service and value from your products, will continue to pay for the service and value. Luxury items and top-of-the-line products should retain their top-of-the-line pricing.

    4. Fix Pricing the Hard Way.

    Pricing products often falls to people who are not in charge of the entire company. They watch the markets and the product flow, and they alter prices according to the old standards of supply and demand. In a normal or booming economy, this is an effective decision. In a recession, this no longer works. As an executive, seeing how each piece of the pricing puzzle fits together, finding where to squeeze that last profit dollar out, is not only your responsibility, it should be a priority. Look at pricing as a whole package deal, taking into account everything from the gas for delivery to the price of raw materials. Improve employee relations by setting new sales standards for your staff, instead of relying on figures from when customers were more apt to buy. Figure out where money is being lost by trimming production costs, cutting back on any expansion project, and slash nonessential perks. Take control of your pricing policy, and don’t let the nagging customers who claim they’re going to go to your competitor force you into bad pricing decisions.

    5. If They’re Going to Go, Let Them.

    If customers say they’re going to take their business elsewhere when you can’t produce lower prices, let them. Instead, create loyalty programs for the customers who do stay with you and attract new customers with deals designed for recession era economics, like bundling new services into old programs while keeping the same price. Keeping the loyal customers and attracting new customers is far more important than placating the fickle ones, who are just as likely to jump ship as they are to stay. Also, entering into a bidding war with other companies is useless: the customer will go with what they perceive to be the lowest cost, costing your business money in the end whether they went with you or your competitor.

    In a recession, your profit margins and overall revenues are not going to be as good as last year. But by taking control of your pricing policy and not cutting prices just to survive today, you help to create a recession-proof product by continuing to build your customer base. If you can keep your customers happy and retain the level of value and service your customers expect, you and your company will continue to thrive long after the recession has ended.

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