Value Pricing in B2C: How Market research can help companies walk the tightrope
Legendary investor Warren Buffet, the chairman and CEO of Berkshire Hathaway, once said he sees pricing power as the most important decision when evaluating a business. According to him, “if you've got the power to raise prices without losing business to a competitor, you've got a very good business. And if you have to have a prayer session before raising the price by 10%, then you've got a terrible business.”
Pricing is indeed one of the most important levers to increase profitability and can have a direct impact on a company’s market competitiveness and overall health. As an example, for a product with a 10% contribution margin, a 1% price improvement can boost bottom-line profits by 10%.
However, most companies are afraid of increasing prices. In fact, when they see competitors making a price cut, most businesses tend to immediately follow suit for fear of losing customers.
So why so many companies still struggle to maintain a strong position in this area?
This is because measuring customers' willingness to pay and designing a value-based pricing strategy are not easy tasks. They require meticulous preparation, specialist skills, precise calculations and support from experienced professionals to avoid disastrous (and often irreversible) outcomes for the business.
In this article, we explore the challenges companies face in crafting an effective pricing strategy, as well as the advantages of using market and research in pricing decisions.
