Optimising pricing strategy with Price Trees

Setting the right price is a key activity and one that can be difficult in tech sectors. High up-front research and development costs or low unit costs mean cost-plus pricing strategies don’t work. As a result, in most cases companies use market-based pricing. This can be harder than it sounds because different companies use different pricing packages like 3 months free, volume-based pricing, or a no-licence managed service. So how do you visualise your market before setting your price?

At Milner, we sometimes use Price Trees because they make clear all the pricing elements and active competitors in a small number of diagrams (see below). The ”trees” show the relative position of your price and the competition’s. Where a competitor claims that one part of their price package is free, you know that you have to find out where they are making their revenue. You can see whether the “Rolls Royce” solution has a “Fiat 500” price tag and vice versa, and assess whether your market and price position make sense.

We had assumed that price trees were widely used but couldn’t find a single academic paper on the subject.  We have recently had an article published in Cambridge Marketing Review (Issue 11) to rectify that omission, and thought that you might find our practical “how to” on Price Tree Analysis useful.

If you want to download the two-side pdf on Milner Price Trees then click here.

As always, if you have any questions or want to find out more, contact Nick at nick.milner@milnerltd.com or 01473 633124.