Pricing Strategies in Engineering Markets

Are you still using static pricing in a dynamic world? As markets continue to shift and customer behavior becomes more unpredictable, sticking with outdated static pricing models means leaving profit on the table. Mid-market companies that embrace dynamic, automated pricing strategies are positioning themselves to boost their profits, improve operational efficiency, and maintain a competitive edge. Dynamic pricing isn’t just about adjusting prices frequently. It’s about using advanced algorithms to adapt prices based on factors such as customer demand, competitor pricing, inventory levels, and even external influences like social media sentiment or weather conditions. The ability to adjust prices in real-time or near real-time—whether in daily or weekly batches—empowers companies to respond quickly to market fluctuations and customer preferences. By doing so, businesses can align their prices with changing market and internal conditions, optimizing their profitability while meeting customer expectations. Here’s how dynamic pricing can help your business: •Time-Based Pricing: Adjusts prices based on time of day, season, or special events to capitalize on fluctuating demand. •Segmented Pricing: Differentiates prices for specific customer groups, store/warehouse clusters or regions, recognizing that value is perceived differently (with different sales mix) across segments. •Peak Pricing: Increases prices during periods of high demand, maximizing revenue when customers are most willing to pay. •Market-Based Pricing: Responds to competitors in real-time, using smart indexing strategies to stay competitive while protecting margins. Even for companies just starting out, dynamic pricing can be relatively simple to implement. A basic setup might involve automated weekly price adjustments using a smart indexing approach against competitors and considering inventory turnover goals, combined with price elasticity models and expert-driven insights. This type of approach can often deliver 80-90% of the value achievable through dynamic pricing, even without the complexity of real-time machine learning. AI and machine learning are now essential to modern pricing strategies, and businesses that haven’t adopted automated, algorithmic pricing are missing out on both increased revenue and customer loyalty. Dynamic pricing is no longer optional—it's a critical tool for companies aiming to drive profitable growth. If your business model aligns with dynamic pricing but you haven’t implemented it yet, you’re already behind. It’s time to take the step toward smarter pricing strategies that will not only optimize your revenue streams but also improve your competitive position in the market.

Most startups play defense when discussing pricing with customers. They dance between asking for too little, leaving money on the table, and asking for too much, only to lose the customer’s interest. The very best companies lead their customers in that dance. They use pricing as an offensive tool to reinforce their product’s value and underscore the company’s core marketing message. For many founding teams, pricing is one of the most difficult and complex decisions for the business. Startups operate in newer markets where pricing standards haven’t been set. In addition, these new markets evolve very quickly, and consequently, so must pricing. But throughout this turmoil, startups must adopt a process to craft a good pricing strategy, and re-evaluate prices periodically, at least once per year. The Three Core Pricing Strategies There are only three pricing strategies startups should pursue: Maximization, Penetration and Skimming. They prioritize revenue growth, market share and profit maximization differently. Maximization (Revenue Growth) - maximize revenue growth in the short term. Startups should pursue maximization when there are no clear differences in customer segments’ willingness to pay, and when the optimal short term and long term prices are equal. Many mid-market software companies price with the goal of revenue maximization, negotiating for the highest possible price in each sale. Penetration (Market Share) - price the product at a low price to win dominant market share. A bottoms-up strategy lends itself to penetration pricing. Price low to minimize adoption friction, grow quickly, and then move up-market after developing broad adoption. Penetration pricing leads to land-and-expand sales tactics. Expensify, Netsuite, New Relic, Slack follow this model. Penetration prioritizes market share. Skimming (Profit Maximization) - start with a high price and systematically broaden the product offering to address more of the customer base at lower prices. Skimming is widespread in consumer hardware. Apple sells the latest iPhones at the highest prices, and repackages older models at lower prices to address different customer segments. As Madhavan Ramanujam tells it, Steve Jobs was both a product genius and pricing genius. By pairing the two skills, he led Apple to record-breaking profits quarter after quarter. Skimming is less common in the software world because few startups develop a product at launch that will be accepted by the most sophisticated customers (and those willing to pay prices that generate the greatest margin). There are exceptions: Oracle’s database, Tanium’s security product, Workday’s human capital management software. Read the full post here : https://lnkd.in/g-mxQiV9

When to Let Your Tiers Fall? (Almost wanted to write "tears") Pricing Tiers, like we discussed yesterday, Are best when based on revenue data, Using the Normal Distribution Curve. However, that approach hinges on some assumptions: 1. The market is stable and there is certainty. 2. The number of suppliers is consistent. 3. There is no unanticipated inflation. 4. Production costs are predictable. If any of these assumptions are violated, Pricing strategy should be revisited. Current situation in Market: - SaaS and AI-tool suppliers are increasing. - Market stability is challenged for many reasons. - Inflationary pressure is high, with looming tariffs. - Production costs are fluctuating rapidly everywhere. Typically, the Basic and Premium Tiers Cost more per unit on average than The Middle Tier for producers. This is because costs of production Follow a certain U-shaped curve. (Not going into details here.) If we take the same example from yesterday: 1. Base tier is priced at $20 and costs $22 per unit. ---> This is a $2 loss per unit sold. ---> 14% of 1000 = 140 units sold. ---> Total loss = $280. ---> Demand can grow rapidly during uncertainty. -----> Heavy losses added on. 2. Middle tier is priced at $30 and costs $20 per unit. ---> This is a $10 profit per unit sold. ---> 68% of 1000 = 680 units sold. ---> Total profit= $6,800. ---> Demand can be stable even in uncertainty. -----> Profitability is reliable. 3. Premium tier is priced at $40 and costs $25 per unit. ---> This is a $15 profit per unit sold. ---> 14% of 1000 = 140 units sold. ---> Total profit= $2,100. ---> Demand can decrease rapidly in uncertainty. -----> Profits can shrink quickly. NET PROFIT = $8,620. During uncertainty, if we "let the tiers fall", And switch to offering only Middle Tier: * Priced at $30 and costs $20 per unit. * Caps out at producing 820 units. * Costs more to produce more. NET PROFIT= $8,200. Actionable Insights: 1. Select safer alternative for pricing in uncertainty. 2. Focus on increasing the value provided in one tier. 3. Offer coupons, incentives, & discounts for switching. 4. Keep a close eye on what your competitors are doing. 5. Ensure that you do not damage reputation in your haste. 6. Hire experts to optimize customer satisfaction and strategize. Follow Dr. Kruti Lehenbauer & Analytics TX, LLC for #PostitStatistics #DataScience #AI #Economics tips To grow your business or your career, strategically! P.S.: As a consumer, do you prefer to see tiered pricing or a flat-rate price for your favorite AI/SaaS tools?

Our most underestimated pricing strategy? Subscription models. It’s tempting to think pricing is just about one-time sales, but subscription models are rewriting the rules. They’re more than a trend—they’re a strategy for sustained growth and loyalty. Here’s why subscription models matter: → Predictable Revenue Steady, recurring income helps businesses plan better and weather market fluctuations. → Stronger Customer Bonds Subscriptions aren’t just transactions—they build relationships. Convenience, value, and personalization create loyalty. → Tiered Flexibility Different customers, different needs. Tiered plans let businesses cater to everyone—from budget-conscious shoppers to premium buyers. What about dynamic pricing? It’s another game-changer. Static pricing is out. Real-time adjustments are in. → Real-Time Adjustments Dynamic pricing powered by AI reacts to market shifts, competitor moves, and customer demand instantly. → Data-Powered Decisions AI sifts through trends, behaviors, and sales data to find optimal price points—no guesswork required. → Market Responsiveness Inflation or demand spikes? Proactive price changes keep you competitive without alienating customers. So, how do you stay ahead? 👉 Leverage Technology: Adopt AI tools to fine-tune your pricing and uncover opportunities. 👉 Stay Flexible: Pricing isn’t static—test, learn, and adapt as markets evolve. 👉 Prioritize Value: Show customers why your pricing reflects the value you provide. Subscription models and dynamic pricing aren’t just innovations—they’re the future of profitability and customer loyalty. What’s your strategy for embracing these trends? Let’s dive into it!