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Pricing Strategy

This is part 1 of a 5 part series on Pricing Strategy – Part 1.

A fundamental aspect of your business is figuring out what price to charge customers for your product. In previous editions of the Data Driven Daily, we assumed you had already determined a price in order to talk you through metrics related to your revenue, like Customer Lifetime Value. For the next two weeks, we’ll take away that assumption and talk more deeply about how you can use data to create a pricing strategy for your business.

Before we do that though, let me introduce myself. I’m Doug Mitarotonda, the VP of Analytics at Outlier, and I’ve been working on pricing my whole career. I started by creating an auction to sell carbon dioxide emission allowances, then designed residential electricity rates for utilities, and most recently helped sports teams and live entertainment promoters price their tickets.

The most important thing I’ve learned through all of these experiences is that pricing should be thought of as a continuously evolving strategy. Because of your company’s objectives, and the competitive environment in which you operate, change over time, your pricing needs to adapt strategically as well.

These next two weeks, we will dig deeper into pricing concepts that will help you become a more profitable business by answering the following key questions:

  • What inputs should you consider when coming up with a price?
  • How do you measure your customers’ response to price changes?
  • How do you maximize revenue for each customer segment?
  • When does it make sense to discount or promote your product?

In response to each question, I’ll spend one day talking about the theoretical aspects and then the next with a concrete example using a hypothetical company, Doug’s Desserts (because I love baking!). This hypothetical company sells its baked goods online and also has an online subscription service that provides customers with recipes and tips.

There will always be some art to creating a pricing strategy, but by the end of this series, hopefully you will feel more comfortable identifying the right data and tools to use to inform your pricing strategy. If you have any questions along the way, please drop me a line. I’m here to help.

Recipe of the day: Cook’s Illustrated Blueberry Scones (free trial / subscription required; I do not receive any compensation for this link)

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