Many businesses rightly put a lot of focus into customer acquisition, from studying Google Analytics to promotion on Facebook or Instagram and making a beautifully designed website. However, one factor that is often overlooked is the pricing strategy.

When you think about company growth, ultimately it is all about that bottom-line profit and not how many customers you have. Research has shown that pricing can be as much as four time more efficient in increasing revenue as customer acquisition strategies. A survey of 96 SaaS companies with over $5 million annual revenue conducted by Price Intelligently showed that they adjust their prices continually in line with economic and environmental factors affecting their industry.

So, how do you find the perfect pricing strategy to balance customer acquisition costs and lifetime value?

Does one size fit all?

Is a Facebook customer the same as a customer who finds you organically? Is a customer with a family likely to buy in the same way as an individual person? Do people from different countries want the same thing? These are just some of the questions you might want to ask.

Let’s take the example of a subscription type service like one that can deliver health food to your door. To start with, you have set pricing that delivers enough items for 4 meals per month at $19.99. Customers from Facebook purchase once and never come back but those finding you organically repeat buy month on month without fail. You end up with 100 organic sales in year 1 from just 10 customers and 20 Facebook sales from 20 customers. The dynamic is clearly wrong somewhere.

There could be two areas of focus here. Firstly, what if you had a $49.99 package offering 10 meals per month and a second package of $9.99. The organic customers still see this as value to them and continue to buy at the same level whilst at the lower price, Facebook customers are happy to purchase more often. Year 2 sees 100 organic sales at $49.99 and now 80 Facebook sales at $9.99.

This is perhaps an extreme example, but the point is that any pricing strategy needs to adapt to its audience and offer what the customer wants. It might take a lot of testing to get it perfectly optimised but finding a balance between acquisition and lifetime value is fundamental to success.

Everybody needs to focus on pricing

Pricing is about acquisition, conversion and retention of customers.

The team that looks to acquire customers is typically within marketing and they will know the right channels for promotion to the target markets. Sales teams need to convert the customers once they come aboard and must be given the right ammunition to do so, being able to answer questions and objectives (in the digital world this may be online machine learning now). The product designers need to ensure that the marketing and sales teams are given the best possible tools to work with. Customer service advisors need to have scope to look after customers during their lifetime, maybe with offers and discounts to ensure they become advocates of your business.

The pricing strategy needs to consider all departments. If your analysis shows brilliant acquisition without conversion or retention, something is wrong and focus should be put into the missing areas.

Pricing needs to be a continuous process

Once you have a pricing strategy that works, that doesn’t mean it is going to work forever. Industries change, people change, technology changes and consumer behaviour changes. Right now, everybody expects low prices but great value. People are buying online instead of going into stores and don’t like to make their own choices. Inflation rates are continually fluctuating and what might seem affordable one day, isn’t the next.

It is important to stay on top of any trends any act accordingly. This isn’t to say make everything as cheap as you can but instead, ensuring that any price you display is supported by the value it offers to the customer. Continually analyse changes you make to optimize performance.

Benchmarking your pricing

Another important aspect of pricing is keeping an eye on what your competitors are doing. Where just about everybody has an online presence, consumers have an overwhelming amount of choice with pricing playing a major part in their selection.

A great example of benchmarking in the UK comes in financial services. Consumers now have platforms like Moneysupermarket.com which compares every online provider and displays them in price order. This means companies are continually competing on price to achieve their optimal ranking position. What this means is that firms have 100, 200 or 300 competitors every time somebody searches for their products.

You must be careful not to just always undercut your competitors as that isn’t necessarily the answer but instead, ensure your pricing strategy meets your brand values and unique selling points.

Brand, USPs and value

Underpinning the entire pricing strategy is your brand. Let’s take a high end brand like Mercedes as an example.

Mercedes pride themselves on “Driving Performance” and an innovative identity which time and time again has meant they are listed in the Top 10 Brands by consumers. What if Mercedes were seeing a drop in sales and started comparing their pricing against a Ford Fiesta, a lower value family car seen as economy and perhaps more working class. Suddenly, Mercedes is affordable to everyone and the brand image completely changes.

Whilst price is important, at the same time you can’t lose sight of what your brand means to the consumer. The lack of values and unique selling points can be just as disastrous as a poor pricing strategy.

Those are some considerations when looking at your pricing strategy and it is vital that it forms a part of your overall business plan. Neglecting pricing is just the same as forgetting about acquiring or retaining customers and is arguably even more important given that it directly impacts your business profit.

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