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Let’s take a few minutes to look at price optimization and how it helps you balance value for your customers and revenue for your company.
What is price optimization?
Price optimization uses your market research to determine the ideal price point for your product or service that will balance value and profit. It’s the foundation of your pricing strategy and decision-making.
Low prices generally equal better value for the customer, which drives a higher sales volume, but can represent a loss as far as revenue for each sale.
High price points may generate more profit per sale, but sales volumes may drop if customers don’t perceive a high value related to the price.
You can find the sweet spot between value and profit with price optimization. Remember, pricing can affect customer satisfaction, loyalty, and sales.
The following information is critical to optimizing your prices:
- Customer survey data
- Amount customers are willing to pay
- Perceived value for price
- Customer behavior data
- Demographics
- Age
- Gender
- Household income
- Psychographics
- Lifestyle
- Geographical market details
- Segmentation based on location
- Historic sales data
- Response to past price changes
- Operating costs
- Inventories
- Avoid items going out of stock when deeply discounted
- Demand fluctuations
- Competitive pros and cons
- Customer lifetime value
- Churn data
But before you start collecting data, let’s discuss why you should optimize your prices in the first place.
The comprehensive guide to market research
Whether you consider yourself a pro or just getting started in the market research world, you’ll learn something new by reading our quick start guide.
Advantages of price optimization
There are many benefits associated with pricing optimization.
The four main advantages are:
Improve ROI
Return on investment (ROI) improvements should happen quickly with optimized pricing. You can monitor changes easily, and teams can respond rapidly to fluctuations in demand—which allows you to maintain your best ROI.
Maximize sales and profits
Locating your best possible price points allows you to maximize sales and profits because customers are more likely to pick up on optimal pricing and move forward with purchases. Pricing that isn’t optimized can lead to decreased profitability and business failure.