HOW TO SET THE PRICE AND REACH AS MANY CUSTOMERS AS POSSIBLE

When I see owners and CEOs or their CFOs approach pricing, it's usually cost- based pricing. A simple game of calculator. They take direct costs, add a minimum margin, and the price is there. Alternatively, when they tap into the calculator, they factor in marketing, sales and a bunch of other things. What the calculator spits out to them, however, is often well above the competition's price. Unfortunately, a calculator is a calculator and a CFO is a CFO, so the company usually accepts that price. Which will usually reliably bury the matter.

What about it? How to set the right price? So that we don't have to undersell, but also so that people don't say that we want to skin our customers. A price that will appeal to the largest possible part of the market, attract the largest possible number of customers, be competitive and still make a decent profit...

Of course, there are several ways to approach pricing. More or less good ones. But we won't deal with those here. Today, we will focus on how the Blue Ocean Strategy treats pricing, which looks at the issue through its instrument, which I call the price corridor of the mass.

What is the mostly accepted price 

Most of the time, the accepted price helps firms identify and set their pricing strategy to reach as much of the market as possible. The whole magic is to first establish the price range that most customers respond to, so you are able to reach the largest part of the market with it. You will then t y p i c a l l y divide this price segment into three price levels (low price, mid price, high price), selling a basic product at the first level and offering a complete package for a more demanding clientele at the highest level.

This way you will be able to reach the maximum number of customers (maybe even attract non-customers) while maximizing profitability.

How to set the optimal price

The mostly accepted cost of the blue ocean strategy can be used by any company. In any industry. It is a simple tool and if you want to apply it in your company, just follow these steps.

1. Identify relevant price categories

Everything in business usually starts with a market analysis and pricing is no exception. First, look at what price ranges are selling products or services similar to what you offer. But don't limit yourself to direct competition. Also research products and services from other industries that have the same function or fulfill the same purpose (need).

Then ask your customers to find out what prices they find acceptable and how much they are willing to pay for your offer. From the identified price segments, you then select the one that is affordable for the majority of customers. For example, if you are selling a new type of running sports shoes for men, you will probably find that sports shoes are sold in these price ranges:

• low price (e.g. 1 000-2 500 CZK)

• medium price (e.g. 2 500-4 000 CZK)

• high price (e.g. 4 000-7 000 CZK)

You will then learn from customers that they are willing to pay CZK 2,500 to 4,000 for quality sports shoes. This segment is affordable for the mass market, which means that most of your potential customers fall into this price range.

2.  Set a price range

Once you determine the price segment that most customers are in, you should figure out what it is:

1. the lowest price customers are willing to pay for your product or service (covers at least the basic cost of production, the product is still attractive to customers),

2. the highest price that the market can absorb without a significant fall in demand (it is competitive and reflects added value).

Within this range, create multiple price tiers to cover different customer expectations and budgets. For example, you can have basic, mid-tier and premium tiers that offer different features or service levels.

For example, if you sell project management software, you can offer a basic version of the software for 200 CZK per month, an upgraded version with advanced tools and unlimited users for 700 CZK per month, and a premium version with 24/7 online support, training and consulting for 1,000 CZK per month. This is the basic product pyramid.

3. Optimise cost and value

Find a balance between reducing costs and increasing customer perceived value. The goal is to offer the best product at the lowest possible price without sacrificing quality. If you don't know how to do this, do your research among customers, analyse reviews and feedback to understand what customers find most valuable. You may find that you just need to improve the design or packaging or add additional services and customer support. Negotiating better pricing with suppliers, increasing production efficiency, automation or reducing waste can all help to lower prices.

Insure a higher price

The Blue Ocean Strategy mentions another aspect that has an impact on pricing, allowing firms to set even higher prices. How well are your products or services protected against copying and imitation? This includes any trademarks, patents, copyrights you have, as well as exclusive contracts with suppliers, unique know-how and production technologies.

If your offering is so exclusive that competitors can't easily replicate it, you can afford to set a higher price and still be sure to attract many customers. Otherwise, according to the Blue Ocean strategy, companies should opt for a lower to medium price.

Can you work with price?

Working with price is a comprehensive approach to the market, competitors, customers, and most importantly, the awareness of the value you deliver to clients. It's not just making it more expensive and cheaper, but also reformatting what you sell into entirely new models.

If you are not selling well and your business is not making enough profit, you are probably handling price poorly. Take inspiration from the Blue Ocean strategy and create affordable products that can compete with both more expensive and cheaper alternatives and reach more customers.