Strategic Pricing Reviews: From Product Launch to Regular Evaluations – How Often is Optimal?

Pricing is a critical component of any business strategy, and setting the right price for a product or service can significantly impact a company’s profitability and market position. However, pricing is not a one-time decision. Companies must regularly review and adjust their pricing strategies to stay competitive in a dynamic marketplace.

The most effective pricing strategy will differ between companies depending on their objectives and marketing strategy. The best pricing strategy for one company will not necessarily be the most effective for the next.

Some of the more common pricing strategies employed by companies are the following:

1. Premium pricing strategy
2. Dynamic pricing strategy
3. Value-based pricing strategy
4. Price skimming strategy
5. Geographic pricing
6. Discount pricing strategy
7. Cost-plus pricing strategy
8. Penetration pricing strategy

This article explores the concept of strategic pricing reviews, their frequency, and the benefits of conducting regular evaluations. Additionally, we will examine two real-life case studies highlighting the importance of pricing reviews in achieving business objectives.

What are the elements of a strategic pricing review?

A strategic pricing review involves a comprehensive assessment of a company’s pricing strategy, considering market dynamics, competitive landscape, cost structure, customer preferences, and value proposition. It is a systematic process that ensures pricing decisions align with the company’s goals and market conditions.

The primary objectives of a strategic pricing review include the following:

a) Evaluating the effectiveness of existing pricing strategies

b) Identifying opportunities for pricing optimisation

c) Assessing market dynamics and competitive positioning

d) Ensuring alignment between pricing and business objectives

e) Enhancing profitability and revenue growth

Frequency of Pricing Reviews

The frequency of pricing reviews depends on various factors, such as the industry, market volatility, competitive landscape, and product lifecycle. However, as a general guideline, companies should conduct pricing reviews at the following key stages:

a) Product Launch:

Pricing decisions during product launches are critical to gaining market acceptance and establishing the product’s value proposition. A thorough pricing review should be conducted before launching a new product or service to ensure optimal pricing strategies.

b) Regular Evaluations:

Companies should regularly review their pricing strategies after the initial launch. The frequency of these evaluations can vary, but conducting them annually or biannually is often recommended. Regular evaluations help companies adapt to changing market dynamics, customer preferences, and competitive pressures. Periodic evaluations also ensure perceived value is maintained by customers and the most profitable pricing strategy of all is continually employed, that of value-based pricing.

Benefits of Regular Pricing Reviews

Regularly reviewing pricing strategies brings numerous benefits to a company. Some of the key advantages are:

a) Profit Optimisation:

Pricing reviews enable companies to identify opportunities for improving profitability. Businesses can adjust their pricing strategies to maximise profits without sacrificing market share by analysing cost structures, customer behaviour, and market conditions.

b) Competitive Advantage:

Regular pricing evaluations help companies maintain a competitive edge in the market. By monitoring competitor pricing, market trends, and customer feedback, businesses can fine-tune their pricing strategies to offer superior value to customers, differentiate themselves from competitors, and attract new customers while ensuring their marketing strategy continues to align with the pricing strategy.

c) Adaptability to Market Changes:

Markets are dynamic, and customer preferences and competitive landscapes evolve. Conducting regular pricing reviews allows businesses to adapt to these changes swiftly. It enables companies to respond to market fluctuations, capitalise on emerging opportunities, and mitigate potential threats effectively.

d) Enhanced Customer Value:

Pricing reviews help companies ensure that their pricing aligns with customers’ perceived value. By understanding customer preferences and willingness to pay, businesses can optimise pricing strategies to offer the right value proposition, improving customer satisfaction and loyalty.

Risks of Set-and-Forget Pricing

Adopting a set-and-forget approach to pricing without periodic evaluations poses several risks to businesses:

a) Lost Profitability:

Failing to adjust prices to match costs or market conditions changes can lead to missed opportunities for increased profitability. It may leave money on the table or price products below market value, impacting overall revenue and margins.

b) Competitive Disadvantage:

In a competitive market, competitors constantly adjust their pricing strategies to gain an edge. A company must pay attention to pricing reviews to avoid falling behind its competitors, losing market share, and eroding its competitive position.

c) Customer Dissatisfaction:

If a company’s pricing is aligned with customers’ perceived value, it can lead to satisfaction and potential customer attrition. A set-and-forget pricing method may fail to capture changing customer preferences or shifts in their willingness to pay, resulting in a loss of customer loyalty.

d) Market Changes:

Markets are dynamic, and external factors such as consumer preferences, economic conditions, technology advancements, or industry trends can significantly impact the perceived value of products or services. A static pricing strategy may need to account for these changes, leading to pricing misalignment with the market.

e) Cost Fluctuations:

The cost of production, raw materials, labour, or other inputs may fluctuate over time. If the pricing strategy is not adjusted to reflect these cost changes, the company’s profit margins can be squeezed, reducing profitability or losses.

f) Inventory Management:

Set-and-forget pricing can lead to inventory management challenges in industries with perishable or time-sensitive products. Companies may have excess inventory or stockouts if prices are not adjusted based on demand, seasonal patterns, or development lifecycles.

g) Price Wars:

Other companies may adopt more dynamic pricing strategies in competitive markets to respond to market changes or seize opportunities where they predict their target customers are price-sensitive customers.

Suppose a company with set-and-forget pricing faces aggressive competitors. In that case, it may get caught in a price war, potentially damaging profitability, brand reputation and selling at lower prices than is necessary. This is why ensuring you have the right pricing strategy for your company is critical.

h) Brand Perception:

Responsive pricing can create a perception of inflexibility and a need for more innovation in customers’ eyes. This may erode the brand’s value and appeal to consumers seeking more personalised and dynamic pricing options and may be particularly noticed by price-sensitive consumers unwilling to pay higher prices than those set by the market.

i) Customer Segmentation:

Different customer segments may have varying price sensitivities and willingness to pay. A static pricing strategy may not cater to these differences effectively, leading to lost opportunities to optimise revenue and customer satisfaction.

j) Inefficient Resource Allocation:

With set-and-forget pricing, the company may allocate resources inefficiently, focusing on low-profit products or missing opportunities to promote high-margin offerings.

k) Inability to Capture Upselling and Cross-Selling Opportunities:

Static pricing may hinder the ability to effectively implement upselling and cross-selling strategies, as the selling price points remain fixed regardless of the customer’s needs or preferences.

l) Regulatory Compliance:

In regulated industries, pricing strategies may need to adhere to specific guidelines. A set-and-forget pricing approach might lead to non-compliance issues if regulation changes are not accounted for.

To mitigate these risks, companies often adopt more dynamic pricing approaches, such as demand-based pricing, value-based pricing, or real-time pricing, which allow them to adjust prices in response to the market dynamics of their target market and consumer demand. This flexibility enables better alignment with market conditions and improves overall competitiveness.

Apple Inc. + Netflix Case Studies

The following case studies of Apple Inc. and Netflix are both good news stories of successful companies that have managed to review and adjust their pricing and market strategies continually: 

Case Study 1- Apple Inc.

Apple is known for its successful pricing strategies. Through regular pricing reviews, Apple has maintained a premium price position in the consumer electronics industry. By continually evaluating market trends, production costs, and customer demand, Apple has consistently delivered products with a perceived high value, allowing them to command premium prices and achieve significant profitability.

Premium pricing is a standard pricing method, but it requires careful consideration and execution to be successful in the long run. Premium pricing is a strategy where a company sets a higher price for its products or services than competitors, emphasising the higher quality, exclusivity, or unique features they offer.

While premium pricing can lead to increased profit margins and positioning the brand as a luxury or high-end option, it also comes with specific challenges and potential drawbacks:

1. Target Market Limitation: Premium pricing caters to a specific segment of customers willing and able to pay more for perceived value. This limits the company’s market reach and may exclude price-sensitive customers who seek more affordable alternatives.
2. Perceived Value Must Match Price: For premium pricing to be effective, the perceived value of the product or service must align with the higher price. Customers who do not perceive a substantial difference in quality or features may view the premium pricing as unjustified and opt for lower-priced competitors.
3. Competitive Pressure: Competitors may respond with aggressive pricing strategies, attempting to undercut the premium-priced products and lure away customers. This can lead to price wars and erode profit margins.
4. Brand Reputation: Premium pricing links the brand to a certain level of quality and exclusivity. If there are any product or service shortcomings, it can disproportionately negatively impact the brand’s reputation and customer perception.
5. Demand Sensitivity: Premium-priced products are often more sensitive to changes in economic conditions as they cater to a smaller, affluent customer base. Economic downturns can lead to a significant drop in demand for luxury goods and services.
6. Customer Expectations: Premium pricing sets higher customer expectations for product performance, customer service, and overall experience. Failing to meet these expectations can result in dissatisfied customers who are more vocal about their disappointment.
7. Market Entry Barriers: Introducing premium-priced products to a new market or launching a new brand with a premium positioning can be challenging. Building brand credibility and convincing customers of the added value may take time and significant marketing efforts.
8. Niche Market Risk: Depending solely on premium pricing may limit opportunities in broader markets. Companies may need to offer more affordable alternatives to target a wider audience.

Companies must conduct thorough market research to succeed with premium pricing, understand their target customers’ preferences and willingness to pay, deliver a superior product or service, maintain consistent quality, and invest in effective marketing and branding strategies. Balancing price, value, and target market positioning is crucial to sustain long-term success with premium pricing. Apple Inc. has successfully managed to maintain its premium pricing models when setting prices across all its products over the decades.

Case Study 2 – Netflix

Netflix is an example of a company that regularly reviews its pricing strategies to adapt to changing market dynamics. In 2019, Netflix conducted a pricing review and adjusted its subscription plans to align with customer preferences and increase content costs. The strategic pricing review allowed Netflix to optimise revenue streams while keeping subscribers satisfied, resulting in the continued growth and market leadership in the streaming industry.

The following case studies of Blockbuster and Blackberry demonstrate the types of things that can go wrong when a company fails to evaluate its pricing and market strategy continually:

Case Study 3 – Blockbuster

Blockbuster was once a dominant player in the video rental industry. Still, its failure to adapt to changing market dynamics and conduct regular pricing reviews led to a significant loss in profitability. Blockbuster relied heavily on its brick-and-mortar stores and late fee revenue while neglecting the emerging trend of online streaming and rental-by-mail services.

Blockbuster’s pricing model primarily relied on charging late fees for overdue rentals. However, as competition intensified and alternative options emerged, customers began to seek more convenient and cost-effective alternatives. Competitors like Netflix capitalised on this opportunity by offering a subscription-based model without late fees.

By failing to regularly review its pricing strategies and adapt to the evolving market, Blockbuster lost customers to more flexible and affordable options. Blockbuster eventually declared bankruptcy in 2010, highlighting the consequences of not conducting regular pricing reviews and failing to respond to changing customer preferences.

Case Study 4 – BlackBerry

BlackBerry, once a leader in the smartphone industry, also fell victim to a lack of regular pricing reviews. BlackBerry’s initial success was built on its secure email and messaging capabilities, making it popular among business professionals. However, the company needed to adapt its pricing strategies as competition intensified and consumer preferences shifted towards touch-screen smartphones with robust app ecosystems.

BlackBerry continued to price its devices at a premium, assuming its loyal customer base and corporate partnerships would sustain its market position. However, competitors like Apple’s iPhone and Android-based smartphones offered more features and a better user experience at competitive prices.

BlackBerry’s failure to conduct regular pricing reviews and adjust its pricing strategy to match market conditions resulted in lost profitability and a decline in market share. The company struggled to compete effectively and eventually transitioned from being a market leader to a niche player in the smartphone industry.

As we can see in the examples outlined above, undertaking regular pricing analysis and executing strategic pricing reviews are essential for companies to optimise profitability, maintain a competitive pricing strategy, and deliver customer value. Periodic evaluations enable businesses to adapt to changing market conditions, identify optimisation opportunities within their pricing system, and align pricing strategies with customer preferences and perceived value. By avoiding the risks associated with set-and-forget pricing, companies can enhance profitability, sustain growth, and remain resilient in dynamic marketplace