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Directions – Reduce Price

The Improve Pricing section of StrategyStreet helps you use pricing to improve your profitability by increasing your revenues from customers. You might improve profitability by reducing prices in order to achieve, or retain, more sales volume and improve operating margins with better economies of scale.

You should consider how changes to your pricing approach might apply to each of your key customer segments. If you haven't done so, we recommend that you identify the customer segments in your business by using the Diagnose/Segments section of StrategyStreet to identify the Core customers in your market. You might then use our Improve/Segments section to identify the emerging needs of these key customers. Your innovation sessions will be most effective if you have a clear understanding of the needs of your customer segments. At a minimum, we recommend that you become familiar with the concepts presented in these videos:

Before beginning the development of your innovation ideas, we recommend that you read our overview Perspective, "The Dart Player's Guide to Pricing When Prices Fall."

As you evaluate each potential change in pricing, make a rough calculation of the impact of the potential change on the net life cycle costs the customer incurs with your product compared to competitive products.

We have organized these innovation ideas into three choices and their supporting actions. We illustrate the actions with many examples. These are practical real-world examples. The examples we offer to support each item on the outline come from the experiences of many other companies in other industries. The purpose of these examples is to broaden your innovation ideas. Each example lists the SIC of the industry, the year, and a short description of a situation where the pricing concept is used or implied in the company's actions.

Each pricing action is distinct from others. However, the innovation examples are not meant to be mutually exclusive nor collectively exhaustive. You may find that you generate new ideas in one brainstorming step that really belong in another. Nevertheless, the new idea is the objective, so anything that helps you generate new ideas is of benefit to you.

We suggest you use this section of the web site as follows:

  • Open the portion of the innovation outline of interest to you.

  • Create innovation ideas to innovate your current pricing approach for your customers, using only the outline.

  • Use the examples supporting the outline item in order to expand your range of ideas.

IDENTIFY PRICE REDUCTION NEEDS. Price reductions may offer revenue opportunities. In some cases, you must price defensively, countering the low prices of competition to keep from losing market share. In other situations, you may be able to reduce price offensively to gain share with low prices. In this latter case, you would expect that competition would be unable or unwilling to match your new, lower price. Shortcut to Innovation>>

To reduce prices effectively, the company makes three sequential choices:

  • CHOICE 3: Use the components of price to further limit the spread of the lower price
    To Choice 3 Directions>>

To Innovation Ideas>>

Basic Strategy Guide Users Go To Step 24


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RELATED LINKS

For a greater overall perspective on this subject, we recommend the following related items:
Perspectives: Since 1985, we have conducted an ongoing in-depth study of companies and industries who face particularly competitive marketplaces. This section of the website enables you to apply the results of this extensive research to your business situation.
List of Pricing Policy Perspectives
List of Price and Margin Levels Perspectives
Symptoms and Implications: This section allows you to check current developments in your industry in order to understand their implications for the future of your marketplace.
List of Pricing Policy Symptoms and Implications
List of Price and Margin Levels Symptoms and Implications

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