Pricing vs. Pricing Strategy: What's the Difference?


In English, knowing the difference  between their, there, and they’re is important for how the respective words are being used.  In pricing, understanding the difference between pricing and pricing strategy are just as important. 


A few years back, I has the opportunity to work with a small business and help the owner drive an effective business strategy.  When I conducted the intake consulting session, I asked that a short form be completed so I could understand more about the business.  About three hours later, I received an email with an attachment and without being able to see the attachment contents, I immediately got excited that I was able to help this business owner out.


Later that afternoon, in the body of the email, the owner indicated that he felt that the questions didn’t pertain to him, so he chose to attach 6 or 7 excel spreadsheets and simply said, “See attached.  Please advise the pricing strategy for the attachments.”  I opened the attachments to find that these spreadsheets were his price lists, exported from his software point of sale.  


At this point, I realized that there needed to be another call to help coach this business owner into understanding the difference between pricing and pricing strategy.  There is a difference. 


PRICING

To many, pricing is either the action of generating pricing for the respective products, or the list of pricing itself.  Pricing is an element within the Pricing Process, but it’s not the strategy.


PRICING STRATEGY


Pricing strategy is the plan.  The easiest way to remember what the pricing strategy identifies in a simple application are the 5 W's and 1 H:

  • What ?

  • Why?

  • When?

  • Where?

  • Who?

  • How?

When I responded back and asked these questions, the answer was “Why does it matter?  All I need to know is why my customers aren’t buying.  Are my prices too low? too high?  You are the expert, you tell me what’s wrong with my prices…”

The unfortunate realization is that a lot of small business owners do not understand the effort that is required to implement a pricing strategy.  Just like customer engagement, infrastructure and information technology, sales, marketing, accounting and so on…each area should have its own strategy.

While there are businesses that do not push out a strategy for every segment of the business, there is a keen difference between businesses who foster a strategy plan and those whom do not.  No matter how big or small your business is, a pricing strategy is important! Setting your price is important, but understand why you are setting the price is also important.  Here are a few questions to think about:

  • How does my pricing align with the market or local area?

  • How does my pricing align with my competition?

  • Am I higher or lower in price?

  • If I am lower and the demand increases, do I have enough time for services or enough inventory to support business?

  • What is the market saturation of the products I am selling?

  • Will I need to offer pricing liquidity based on the market conditions?

  • Do I have enough working capital to participate in pricing elasticity trials to determine the best price points?

  • How will I evaluate the success or failures of the strategy?

I like to refer to pricing strategy as an art.  It takes time to deliver exceptional art pieces.  As the artist becomes more familiar with brush strokes, they become more versed, comfortable, and engaged.  In pricing, the more you fine tune your strategy, the more comfortable you will become.  Simply throwing a stick on some products with a price is one thing, but truly understanding the strategy behind the numbers will reward your business with additional opportunities.

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