module 3.4 pricing

Why price has such a big impact

Imagine a business sells :

1000 units

₹ 1,000 per units

Revenue: ₹10,00,000

Now imagine the company Increases price by 5%

New price: ₹1,050

Revenue becomes:₹10,50,000

That extra 50 K Often flows directly towards profit

Meanwhile:

In increasing sales volume by 5% requires:

• More advertising

• More staff

• More inventory

• More operational cost

Not all revenue growth is equally profitable

Why pricing is undervalued?

The most companies spends huge resources on:

• Product development

• Marketing

• Sales

• Operations

But pricing often gets surprisingly little attention

Why ?

Because pricing feel risky, lenders worry

“ What if customers stop buying “

As a result, many businesses under price them themselves

Pricing is about psychology, not just maths

Beginner thinks : price = cost + profit margin

Marketer thinks : price = What customers believe The value is worth

This is a huge difference

Example: Coffee shop

Two Cafe May serve similar Coffee

• One charges ₹80

• Another charge ₹250

Why?

Because customers aren’t buying only

They are buying:

• Convenience

• Experience

• Environment

• Status

• Brand

Customer paying for perceived value, not just physical

Three common pricing mindset

Cost Based pricing

Competitor based pricing

Value based pricing

Cost based pricing

Formula:

Cost + markup = price

Example :

Product cost= ₹100

Desired margin= ₹250

Price = 150

Problem

Customer, don’t care about your cost. They care about value.

Competitor based pricing

Questions:

What competitors are charging?

Then match or slightly beat them

Problem:

You became reactive

Competitors, determine your pricing strategy

Value based pricing

Questions:

What is this worth to the customer?

This usually the strongest approach

Example:

The software tool saves a company

₹5,00,00 annually

Charging ₹50,000 may feel expensive

But relative to the value delivered

It’s actually cheap

The pricing tight rope

Pricing is a balancing act

1. Too high -customers, leave sales decline

2. Too low- Revenue is lost brand value may decreases profit suffers

Goal find the highest price customer willingly accept

Why discounts are dangerous?

Many business uses discount as their first solution

Problem:

Customer learn quickly:

“If I wait, the price will drop”

this trains, customers to delay purchases

Example:

Fashion retailers of creates this problem

Customer stop buying at full price because they accept sales every few weeks

Discounting is easy, maintaining the price power is difficult

Pricing and brand positioning

Price communicate a message, customer use price to judge quality

Example:

Imagine two bottles of olive oil

Bottle A ₹ 150

Bottle B ₹ 900

Without knowing anything else, may people Assume:

• Bottle B is higher quality

• Bottle B is premium

Price itself become part of the brand

What great business understand about pricing?

Great businesses, don’t ask how low can we go?

They ask: How much value are we creating?

Then they price, according

Common pricing mistakes:

• Pricing based Only on cost

• Copying competitors

• Using discount to often

• Ignoring customer perception of value

• Being afraid to test prices

Practical framework before setting a price , ask :

1. Value -What problem does this solve ?

2. Alternative- what other options does the customer have ?

3. Differentiation- Why is this worth paying more for?

4. Customer perspective-What outcome is the customer buying?

5. Brand position- should this budget midmarket or premium?

Think of pricing as a bridge between:

Customer value

Price

Business profit

If the price doesn’t reflect the value delivered, both customers and business lose