Glossary

With a pricing strategy, a company defines the pricing logic and price positioning for its goods and services. Well thought-out pricing is one of the foundations for healthy growth and is decisive for a company's success.

Currently, pricing is of particular importance because the economic environment - high inflation rates, rising costs in logistics and greater logistical effort - makes price increases unavoidable.

How pricing works

In order to design optimal pricing structures, it is not enough to rely solely on a mathematically-centred pricing logic that is based on production costs and adds a targeted profit. Nor should one listen to gut feeling and intuition alone or orient oneself solely to the competition.

In order for a company to set the desired prices, it needs an emotional value logic (value-based pricing) in addition to the rational price logic. Only through the interaction of these two perspectives can the optimal price be determined and enforced.

Why do we need a value logic? Only when people perceive and appreciate the value  of a brand are they willing to pay more for it. Take BMW, for example: In addition to the vehicle itself, BMW sells the one-word value that the brand has built up over the years: Joy.

If this value (a car that is more fun to drive than those of the competition) is conveyed with the product and valued by people, the product is a brand. It is incomparable, which is why its price can be decoupled and shaped from the pure product performance.

A brand thus lends meaning to an offer, it adds subjective value to the purely objective benefit. The key to price optimisation thus lies in the "non-functional".

How does pricing succeed with the help of the brand?

The brand is indispensable for pricing because it determines the value logic - this applies to B2S, D2C and B2B. Strictly speaking, the brand was invented for this purpose alone: that it inspires people with its values and thus higher prices can be enforced.

This is why brand management must be involved in pricing; it is not the sole responsibility of management and sales. Just like brand experiences and the associated reputation, it is a task for everyone in the company. Because, quite clearly, people are generally willing to pay more for a brand with a high reputation and a good reputation.

Highlighting excellence: Most companies are sitting on a treasure that they only need to lift to gain more "pricing power": It is their top entrepreneurial achievements, which they have not yet communicated and made perceptible in sufficient detail.

Triggering emotions: When a brand skilfully addresses people's wants and needs, it triggers positive feelings. This is of great importance because 95% of purchasing decisions are made subconsciously. Often people cannot explain why they favour a brand. They then simply say "I think the brand is cool" or "I kind of like the brand". Such positive associations remain stored in the brand and can be transferred to other products and services.

This is how you can implement price increases

A price increase alone will not lead to success, such an approach is useless. Likewise, upcycling does not work if it is accompanied by a new campaign. Instead, a price increase must be supported by top performance and an extended benefit argument - embedded in an attractive storyline. Often, even the business models and processes have to be adapted to achieve a higher appreciation - and thus a higher willingness to buy - of people.It is crucial that people change their attitude towards the brand. This starts in the company itself. Only when views and evaluations change there, can a valuable top brand emerge from an average brand that yields high returns.Read more about this in the glossary article on uptrading

Beware of discounts

Limited price reductions make sense to compensate for seasonal fluctuations or to reward regular customers for their loyalty. However, price cuts make no sense if they are initiated out of panic and cannot be easily reversed. People quickly get used to lower prices - and this usually weakens brand attractiveness, which is indispensable for a long-term pricing strategy and for later price increases.

What is a price premium?

A price premium is when shoppers are willing to pay more for a branded product than for comparable offers from the competition. It can only be achieved with incomparable performance - and every brand can be incomparable beyond the purely functional level. The price premium is a sign of strong brands and helps to increase sales. You can find out more about this in the glossary article Price premium 

10 Quick Wins - how to increase your price assertiveness

1. never forget: The added value that people perceive beyond the pure functional product benefit is what determines sales success, not the price!
2. decide what your brand should stand for, otherwise you will become interchangeable and have to surrender to the price war.
3. develop a clear positioning with constantly repeating messages.
4. Condense your excellence and the value it creates to its essence. 
5. build your appeal: Awareness alone is not enough for a price premium.
6. invest everything in building trust. A person who trusts thinks less.
7. develop a distinctive brand style: your brand must be clearly recognisable at first glance.
8. do everything to have an incomparable offer, otherwise the lowest price will win.
9. avoid discount promotions: If in doubt, accept sales reductions instead.
10. Develop a storyline in which the customer is the hero.

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