Smart Pricing is a Pricing Strategy that can be implemented in many different industries and combines the following:
So, it is easier to visualize the Smart Pricing concept through an example:
"Imagine a coffee shop that through a loyalty card tracks the orders of their customers.
From that, the coffee shop knows that a specific regular customer always order one medium size coffee and never orders any food.
Additionally, in this example there are the assumptions that the difference between a medium and a large coffee is only $1 and the coffee margin is high, and without a sale cannibalization, a discount of 75% on the coffee upgrade it still be profitable.
So, next time that specific customer checks in with the loyalty card, the shop assistant would be notified in the machine that the customer is eligible for a special promotion that day – he can upgrade is coffee to large only for 25 cents, instead of paying the normal price of $1.
If the customer doesn´t adopt the promotion, the shop probably still gets the usual medium size coffee sale… but if the customer bites it, there is a short term positive revenue and margin impact and from the product seeding there is a relevant probability of behavior change on the customer, if he starts ordering in the future a large coffee instead of a medium, even without a discount."
The Smart Pricing drivers on this example were:
The Smart Pricing strategy is an effective way to increase revenues, profits and also customer satisfaction, engagement and loyalty.
- Profitability - Design an offer/promotion/service/product which is profitable.
- Relevancy - Identify the customer’s profile that may consider the offer relevant.
- Segmentation – Push the proposition only to the customer’s segment that the offer will be relevant and profitable.
- Timing – Identify the trigger event that has associated a higher probability of the offer adoption and push/promote the offer at that moment.
“Smart Pricing" sounds only as another marketing buzzword… not true.
So, it is easier to visualize the Smart Pricing concept through an example:
"Imagine a coffee shop that through a loyalty card tracks the orders of their customers.
Additionally, in this example there are the assumptions that the difference between a medium and a large coffee is only $1 and the coffee margin is high, and without a sale cannibalization, a discount of 75% on the coffee upgrade it still be profitable.
So, next time that specific customer checks in with the loyalty card, the shop assistant would be notified in the machine that the customer is eligible for a special promotion that day – he can upgrade is coffee to large only for 25 cents, instead of paying the normal price of $1.
If the customer doesn´t adopt the promotion, the shop probably still gets the usual medium size coffee sale… but if the customer bites it, there is a short term positive revenue and margin impact and from the product seeding there is a relevant probability of behavior change on the customer, if he starts ordering in the future a large coffee instead of a medium, even without a discount."
The Smart Pricing drivers on this example were:
- Profitability – The discount on the coffee upgrade is still profitable.
- Relevancy – The targeted customer already orders regularly a coffee, so the promotion is on top of what the customer is looking for.
- Segmentation – Only customers that regularly order a medium coffee would be eligible and would be presented with this promotion.
- Timing – By proposing this deal when the customer is already buying one coffee in the shop increases the probability of the customer taking up the promotion, instead of sending him this promotion through a newsletter by email.
The Smart Pricing strategy is an effective way to increase revenues, profits and also customer satisfaction, engagement and loyalty.
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