Below you will find some of Maada Consulting and Analytics's philosophy and simple tools that we can use to help optimize pricing strategies, tactics, and execution for our clients. More sophiticated analytics tools are also available, but not very one needs them and they still require the kind of judgments embedded in these simpler tools to apply.
There is no right price without clear objectives, but getting that clarity is often harder than it seems like it should be. There are, however, a range of simple tools that facilitate objective setting and alignment between business and marketing objectives. The Business, Marketing, and Pricing Objective guides below are examples of how we might help guide the overall process of determining the right objectives for pricing.
Price positioning ultimately is judged by the customer. This makes segmentation and targeting an important pre-step for pricing strategy. These guides and tools explore the segmentation process and provide some aids to prioritizing targets.
Price / value maps are visual tools that improve understanding of price positioning and the value drivers that support it. They are also useful for setting future product development and communication priorities.
It is important to identify both points of parity as well as points of difference between your offerings and those of your competitors to guage the relative value for money of the offerings. The tools below are examples of how to do this.
One way to determine prices is by defining a premium or discount index versus a benchmark. There are, however, different types of prices that
may serve as indexes and choosing the wrong one can lead to bad decisions. These tools and guides discuss the index-setting process and provide some aids to help.
Understanding price elasticity is crucial if one seeks to improve results through better pricing. Yet, calculating elasticity can be an infuriatingly complex task. These tools and guides explain the process of how to collect data for pricing, estimate price elasticity and provides some simple examples of different approaches. The demand curve generator is a simple, wisdom-of-the crowds tool that can help different points of view into a consensus around the impact of pricing changes. It is good for workshops and for hypothesis formation.
Gauging the short-term profitability of a promotion can be harder than it seems it should be.. On has to first construct a counterfactual of how sales would fare in the absence of a promotion, and then develop the scenariao of costs and revenue with the promotion. The promotion ROI calculators below are simple, tactical planning tools that estimate the profitability of a typical CPG trade promotion through a retailer, given expected lifts and investments.
While usually not reported publicly, trade and consumer promtion discounts are often the second biggest "cost item" after cost of sales. How much of % reduction in revenue should be targeted can vary by industry and customer mix. There is a point where everyone can recognize that it is too high, but no discounts vs. list price is also usually not advisable either. The sweetspot lies somewhere in between. The first step to bringing trade and consumer promotion discounting more in line with business objectives and strategies is to make them more visible (internally). Price waterfalls are powerful tools to monitor how different price and trade elements drive net sales.
Another important task is to make sure that the prices across one's own SKUs are logical given their relative value. This applies to everyday prices and after considering relative promotional support.. Price Ladders are simple, visual tools to compare price ranges around one's own or competitive codes and to monitor compliance with pricing guidelines.