A growing number of companies are realizing the benefits of determining the prices of their products and services according to customers’ willingness to pay – rather than the traditional approach of basing prices on cost structures. And pricing is one market that continues to flourish, despite today’s deteriorating economic outlook.
Swedish pricing consultancy PriceGain’s continued growth is an excellent example of this trend. After achieving a 170 percent jump in revenue during the third quarter of 2007, PriceGain boosted that by an additional 86 percent during the most recent quarter of this year.
“We are seeing many companies starting to realize that long-term profitability does not exclusively flow from cost reductions. More important is gaining an understanding of how much customers are willing to pay for a given product or service,” says Per Högberg, PriceGain co-founder and senior partner.
“Companies that have taken this step have seen their profitability increase dramatically, often without loss in revenue, or market share,” Högberg adds.
Many companies have now started driving down costs in a bid to combat the effects of a recession that many fear is already underway. All too often companies introduce cost reductions without improving their product, or processes, while using traditional cost calculations to determine prices.
“Companies that fail to change their pricing structure will now face even tougher times as profit is squeezed further due to cost reductions in a cost-plus model. Growing numbers of companies are realizing this – one of the reasons PriceGain is growing so rapidly,” Högberg says.
PriceGain is an international pricing consultancy advising businesses on how to use price to maximize profit.