Pricing and Profitability Management: A Practical Guide for Business Leaders

Designing and Integrating an Effective Pricing Structure

Companies use pricing structures to configure prices for their offerings. When used effectively, these structures allow different components of a product to be removed or added depending on how various customers value them relative to the competing choices available to them. The pricing structure also affects price positioning—the way in which organizations seek to reinforce a price impression with consumers. Proper positioning is critical because it reflects what a company wants price to communicate about the brand, quality, and style of its goods and services. It also helps a company to support its goals, with respect to not only revenue and margin, but also brand communication, customer segmentation and targeting, and channel management. Thus, companies must ensure that their pricing structure reinforces the desired positioning.

An effective pricing structure, working in concert with a modular product, is essential when establishing a pricing strategy that elicits the maximum value from each customer and market segment. As with prestige pricing (which we will discuss later in this chapter), even the cents portion of the pricing structure affects how buyers perceive value. Five variations of pricing structure are discussed in the following:

• list prices and discounting
• price bundling
• price fencing
• price menus
• price metrics.

Each of these structures can support the implementation of a pricing strategy. For example, if a ...