Margin-based pricing seems successful, but its four downfalls are cutting your profits short. Learn more about its shortcomings and how to build a better pricing strategy. See the full post for more information: https://thekinigroup.com/the-4-evils-of-margin-based-price-strategy/

1. THE 4 EVILS OF
MARGIN-BASED
PRICING STRATEGY
insights from

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Margin-based pricing – great in theory.
It predetermines profit for a specific
product by setting a definitive goal for the
difference between price and cost.

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BUT…
It creates a host of potential issues,
because determining price involves
many more factors than just cost.
Margin-based pricing ignores these other variables.

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Margin-based pricing is easy.
But it weakens your results.

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Margin-based pricing has
4 MAJOR EVILS

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Evil Number One:
Emphasis on cost,
not value

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Creates a disconnect between your price
and the value you create for the customer.
This puts your profits at risk.

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Your Plan of Attack Against
Evil Number One:
Identify the value you bring to
customers and communicate
it to them during pricing
discussions.

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Evil Number Two:
Assuming Your
Customers Are Clones

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Are you treating your customers like
the exact same person?
This creates three problems:
1.Inability to create tailored value
propositions
2.Sacrificed increased margins from
customers willing to pay more on value
3.Risk of customers who draw the line at a
specific price point

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Your Plan of Attack Against
Evil Number Two:
Segment by customer and
related variables to
determine the most
profitable price for every
transaction.

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Evil Number Three:
Assumption Your
Products Are Clones

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Are you lumping all of your product
strategies together as well?
This margin-based evil fails to consider how
customers need and use products differently.
It also fails to consider slightly different costs
to your company from product to product,
costs you could be recouping through your
pricing strategy.

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Your Plan of Attack Against
Evil Number Three:
Segment your products as
narrowly as possible and
price them accordingly.

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BONUS TIP:
Further segment pricing
down by a customer group
and product for the most
profitable pricing possible.

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Evil Number Four:
Relying on Volume for
Profit Improvement

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If you focus only on volume, you’re completely
ignoring customer and product mix.
Volume isn’t your only lever for profit
improvement.
This strategy sets you up to have to drop prices
to reach your sales goals – negatively impacting
your overall profit goals.

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Your Plan of Attack Against
Evil Number Four:
Use a business analytics tool
to evaluate all five profit levers
(price, cost, customer mix
shift, product mix shift and
volume) to build your pricing
strategy.

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YOUR STARTING POINT:
Find and leverage customer and
product trends within your sales
transaction data to determine
pricing at a transactional level.

20. 2020
KiniMetrix helps companies understand
their sales transaction data to build stronger
pricing strategies.
Click here to view a video demo and
see how KiniMetrix can do this for you.
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