Strategic Marketing Basics

In cases where volume is the priority, we will choose a pricing method guided by market considerations. So, it's important to have clear volume objectives before starting the analysis. If you're not sure about them, imagine various scenarios...

 

Start with a customer price sensitivity survey in order to determine  attractive or acceptable (or at the least tolerable) price levels for the target customers. Preference goes to a quantitative survey since you want to associate different potential sales volumes to different price alternatives. You want to measure "willingness to buy". If you cannot afford a professional survey, you should at least talk with buyers and end customers.

 

 At the same time, study carefully competitive marketing propositions : prices can be in the low range and in the high range but you should focus on those competitors who are the most comparable to you. Ask your customers which competitors they consider as an alternative to you.

 

Be careful ! What is involved here is the price to the final buyer. But you should take into account the possible intermediaries who themselves take margins along the way.

 

After these 2 analyses, you can set up a range of potential price scenarios and, to each price level, you should associate estimated sales volumes, sales revenues (price times volume), and contributions/margins (sales less variable costs).

 

At this point, you need to choose among the different alternatives. You should operate a screening based on the following criteria, in the following order :

 

1. what are the solutions that best meet the volume objectives? 

2. what are those that best respect the profitability constraints ?

3. what are those that are most consistent with the positioning of the value  proposition ?