How pricing is an often underestimated yet key element of your company’s go-to-market approach
The four components of an integrated and structured pricing strategy
By Koen Tackx
Professor of Marketing
While many entrepreneurs agree that pricing is a very powerful tool, it’s often underused as a strategic lever in one’s growth strategy. In addition, pricing is seen by many as an art rather than a science. The Vlerick Entrepreneurship Academy’s ‘Pricing Strategy’ Playbook presents an integrated approach to pricing, structured around four key components.
1/ Identifying VALUE DRIVERS
The starting point of a pricing strategy is the value you create for your customers. What superior added value does your solution bring compared to the next best alternative? The value drivers of your product or service can be classified into five categories: financial, functional, certainty, personal and societal. Identifying these value drivers is a key step towards value-based pricing.
2/ Defining the PRICING LEVEL
How much will you ask for your solution, considering alternatives? How will you let your prices evolve over time? In general, there are five different pricing level strategies: premium, skimming, penetration, discount and dynamic. Deciding which strategy to employ depends on a number of elements, including your company’s strategy, the customer’s willingness to pay, the competitive landscape, and your view on fairness.
3/ Selecting a PRICING STRUCTURE
To what extent are you going to align your pricing with your customers’ benefits? In general, customers prefer more customer-centric offers, which have a clearer link between the value created and the price. However, customer-centric pricing can require that a product company shifts towards a service provider model.
4/ Setting the PRICING LEVERS
The last step is about defining what you are going to charge (extra) for. It means stretching your pricing beyond the actual product and introducing several pricing levers you can consider, such as specific purchasing, product, service, branding or sustainability elements.
Defining a pricing strategy is best seen as an interactive process that requires continuous monitoring of the internal and external environment. The Vlerick Pricing Canvas – which you will find in the ‘Pricing Strategy’ Playbook – can help you to integrate all steps and the various ways of impacting your pricing strategy in each step.