8 Tips To Maximize Profit And Manage Price

Los Angeles SEO Man

For you to know when a product price is right, you must peer into the minds of consumers.

After all, they base their perception of an appropriate price on what they’ve experienced and learned about your brand over time. That combination of what a customer knows, feels, recalls, believes and thinks about a product will dictate what they consider to be an appropriate price.

If the pricing process is poorly designed and implemented, your product may capture a consumer’s attention, but your company will not be the recipient of his hard-earned dollars. In the Harvard Business Review article “How Do You Know When the Price Is Right,” Robert J. Dolan offers eight tips for improving your pricing process.

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1. Evaluate the worth of your product or service to the customer. Some companies base a product’s price on its cost. It’s far better to price a product according to its value to the consumer, according to the need it meets or the problem it solves. So, when pricing your product or service, identify the benefits your clients gain from those offerings. In this process, consider the criteria they use when making a purchase decision, such as reliability or speed of delivery.

2. Consider the way each customer may value a product. Different consumers may use your product for different reasons and in different ways. Depending on product or service use and the problem it solves or the need it resolves, one consumer is likely to value your product differently. So, customize your product’s price according to the value it provides to each customer.

3. Evaluate customer price sensitivity. Price sensitivity refers to the degree an offering’s price affects consumer purchasing behaviors. It’s measured using the price elasticity of demand, which is the percent change in the quantity sold given a one percent change in price. To set a price that will maximize your profit margin, while protecting the offering’s growth in sales volume, consider that your product’s price elasticity is affected by customer economics, search and usage, and the competitive environment.

4. Pinpoint an optimal pricing structure. Before setting a price, analyze the different pricing structures. For instance, your company can discount a priced based on the quantity purchases or set a price for a bundle of products, rather than set a fixed product price.

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5. Anticipate competitor reactions to your product pricing. Consider several alternatives your competitors will use to respond to your pricing decisions. For instance, a competitor may introduce an offering of higher quality or more user-friendly than your product. Alternatively, a business that offers similar products may use a social media marketing strategy to position itself against your company.

6. Track final prices at the transaction level. If you offer discounts or rebates, your product may have one list price, but many final costs. Customer returns and damage claims, however, will effectively decrease final prices and your product’s net revenue. When setting a price, you should account for these elements.

7. Consider the customer’s gut-level response to your prices. A consumer’s choice is more than the result of a rational analysis of available alternatives according to Psychology Today. According to the publication, emotions play a significant part in a consumer’s purchase decisions. So, keep in mind that the long-term effects of your customer’s emotional response to a price can outweigh the short-term economic benefit of a sale.

8. Consider if your profit margin is sufficient to incur the cost of an offering. Cost-to-serve refers to your end-to-end cost of delivering an offering to a customer. CTS includes all the activities you conduct to earn and collect product revenue. The metric is useful in identifying those customers that are profitable and the ones that aren’t. For instance, a high cost-to-serve customer may pay a low price for a product, and that’s a negative cash flow proposition. Consequently, it’s important to consider if the price a customer is willing to pay is sufficient to offset the cost of serving them.


Los Angeles SEO ManThe SEO Man runs things at Los Angeles SEO Man in Los Angeles, CA. Our company specializes in Google search rankings and SEO services for local businesses, as well as national corporations and celebrities. If you are looking for an SEO solution for your local business, contact us at LA SEO Man or call us at (213) 314-5004 for a no-obligation consultation about your website rankings.

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