How to improve your pricing strategy and avoid bad debt (2/2)
In part one of this blog I wrote about the importance of rudimental market research, and how constantly reviewing your pricing is essential strategy. I looked in some detail at Apple’s effective premium pricing policy, which together with calculated differentiation has given them control of the market and phenomenal success. In this instalment I will be exploring models of market structure that can help engineer a pricing strategy, and taking a look at easyJet’s winning formula.
Establishing a pricing structure
There are two models of market structure that are particularly useful when considering and developing pricing strategy. These are: the Boston Matrix, and the Ansoff Grid.
The Boston Matrix
The Boston Matrix was created in 1970 by thy Boston Consulting Group. It takes into account Product Portfolio against a market share and market growth axis. It permits business to understand where their products and services fall, and in turn allows them to construct an effective pricing strategy.
The Ansoff Grid
The Ansoff Grid is essentially a business development model, but it does provide companies with potentially lucrative insight. Devised by renowned businessman and mathematician Igor Ansoff, the grid allows you to look at a company’s prospects from both a market angle and a product/service angle.
While both models provide a good framework and help companies to navigate away from bad debt, for a truly successful pricing strategy to facilitate maximum profits you also need a clear sense of target audience. One company that has achieved exceptional success as a result of clear vision and market knowledge is easyJet.
EasyJet winning formula
Introduced in 1995 by Stelios Haji-loannou, easyJet is an extremely successful ‘no-frills’ low cost airline. Operating on a business model not dissimilar to those employed by the seminal USA Southwest Airline, easyJet has the dominant share of Europe’s low-cost airline sector. Reaching staggering profits of £62.2 million as early as 2004, easyJet was able to employ a low pricing strategy thanks to low operating costs, increasing revenue and extensive use of the internet. The basic product offering comprising of no seat reservations, free seating and stripped back in-flight services makes easyJet’s market-leading prices viable.
For firms beginning to define or review their own pricing strategy, the ultimate message is this: know your market and whether you want to stand out as an ultra-accessible or ultra-premium brand. As precedent shows, big profits are around the corner for either sort of brand who plays its cards right.
Do you want to know what the future holds for Credit Management and how to adapt towards these influences? Go directly to our download center and download the eBook for free!