Pricing Strategies

Synopsis

Need to evaluate the best pricing strategy for a product? Our Pricing Strategies spreadsheet template includes the top five pricing tools to evaluate cost, features, market share, competition, and customer price sensitivity to pick the right price for the right market. Adjust and analyze pricing to maximize profit margin for any product based on key metrics such as LTV, CAC, COGS, market share gained, or customer price perception.

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How can one measure the effectiveness of a pricing strategy?

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The effectiveness of a pricing strategy can be measured by evaluating key metrics such as Lifetime Value (LTV), Customer Acquisition Cost (CAC), Cost of Goods Sold (COGS), market share gained, and customer price perception. These metrics can help determine if the pricing strategy is successful in maximizing profit margin for a product.

What are some factors that can cause a change in market share?

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Some factors that can cause a change in market share include changes in pricing strategy, introduction of new products or services, changes in customer preferences, changes in market conditions, and competitive actions.

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We've created this Pricing Strategies template in Excel and Google Sheets that you can download and customize to your needs. whether you need to compare the competition's pricing strategy, the product's cost and ideal margins, different pricing tiers, historical customer price sensitivity, marketing spend, CAC, and LTV, feature-by-feature freemium conversion, or market share captured over time, this tool can help you do it. We'll now show how to use the pricing strategy spreadsheet template to utilize the top five pricing strategies to price a product like a new cell phone.

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What is the role of customer price perception in pricing strategy?

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Customer price perception plays a crucial role in pricing strategy. It refers to the customer's opinion of a product's value. If customers perceive that the product's price is greater than its value, they are less likely to purchase it. Conversely, if they perceive that the value is greater than the price, they are more likely to make a purchase. Therefore, understanding customer price perception can help businesses price their products in a way that maximizes sales and profits.

How can you use the pricing strategy spreadsheet template to evaluate market share gained?

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The pricing strategy spreadsheet template can be used to evaluate market share gained by tracking the market share captured over time. This can be done by inputting data related to your product's pricing, the competition's pricing, and the overall market conditions. By analyzing this data, you can see how changes in your pricing strategy affect your market share.

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Competitor comparison

To begin, first enter the name of the cell phone under the Price Analysis section of the Field tab, along with an initial price point to analyze. Then enter the total fixed cost for the business, which is the total amount of money a business must pay to keep their operations running regardless of how many products they make or sell.

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How can a business use pricing strategies to improve its customer price perception?

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A business can use pricing strategies to improve its customer price perception by implementing strategies such as value-based pricing, psychological pricing, or promotional pricing. Value-based pricing involves setting prices based on the perceived value of a product or service to the customer rather than on the cost of the product or service. Psychological pricing involves setting prices that are more appealing to customers such as pricing an item at $9.99 instead of $10.00. Promotional pricing involves temporarily reducing prices to increase short-term sales and attract more customers.

What are some common mistakes businesses make when setting their initial price point?

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Some common mistakes businesses make when setting their initial price point include: not considering the cost of production, not understanding the market and competition, pricing too high or too low, not considering the perceived value of the product by customers, and not revisiting the price point regularly to adjust for changes in the market or cost of production.

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The first pricing strategy to assess is competition-based pricing. On the Competitor comparison tab, we can check our phone's price against the competition with two competitive landscapes: a Competitor perceptual map and a Kotler's matrix. Fill out the competiton's price-point below, along with their perceived product quality and price level and estimate for annual units sold. Each product is now placed on the perceptual map, where bubble size indicates each competitor's market share, and Kotler's matrix, which defines each competitor's pricing strategy.

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For example, Apple's pricing strategy with the iPhone 14 is Premium pricing because its a high price-point and high quality item, but the iphone SE pricing strategy would land at High Value for high quality at a medium price-point.

Cost-based pricing

Now cost-based pricing determines how to price products based on the product's sensitivity to the cost of goods sold. Here on the Cost-based pricing tab, we compare multiple price-point scenarios to find the price-point with the lowest break-even point in our break-even analysis.

To determine these scenarios, either experiment with fixed dollar increases, where the list price is changed, or percent-based increases, where the profit margin is changed. These are then presented against one another to analyze which price point has the lowest break-even point. Below, use the filters to compare two single break-even analysis scenarios side by side.

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Pricing sensitivity

Next up is a pricing landscape to find the price sensitivity of your current customers. In the pricing data table of the Price sensitivity tab, enter how many units sold at each historical price point during each time period. Add any marketing spend and customer lifetime value, or LTV, of that cohort.

The charts visualize how changes in price impact "customer price sensitivity" across units sold, revenue, profit, and CAC while accounting for variables such LTV, marketing spend, or cost over time. Remember, you can download and customize this Pricing Strategies spreadsheet to evaluate your own customer price sensitivity right now.

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Freemium conversion

What about pricing freemium products, where conversion to paid depends on feature sensitivity? Here on the Freemium conversion tab, analyze customer feature sensitivity across ten unique product features. Enter the feature name, the number of free users gained, the conversion rate to paid, the price of the tier purchased, any marketing spend, and expected customer LTV. For example, our phone's photo edit app feature converted the most free users, at the second highest price-point, with the most revenue and lowest acquisition cost.

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The first chart highlights the number of active users and those that converted across each feature. The others compare features across free users gained, conversion, price, revenue, spend, acquisition cost, LTV, and profit.

Market penetration

Last up, analyze two competing pricing strategies and how well they capture market share over time with the Market penetration tab. Below the charts, there are two strategy tables where you can plot the data from your competing strategies. Enter the strategy name, the dates, price points, units sold, and market share captured to compare progress in phases. Here, two opposite strategies to capture market share are assessed: price skimming versus penetration pricing.

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"Price skimming" starts with a high, premium price-point that gradually goes lower to enter and gain market share before offering deals. "Penetration pricing" starts with a low price to penetrate the market, create a moat, then increase prices to cover costs.

To use these top five pricing strategy tools to price your next product, download and customize this Pricing Strategies spreadsheet template in Microsoft Excel or Google sheets. Now, go check out our Pricing Strategies (Part 2) presentation template for more tools to inform your pricing strategy analysis with beautiful slides to share your conclusions with key stakeholders.

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