How do you get your pricing right?
Pricing is a key component of your marketing mix and it's often the thing that small business owners worry about. Here are some tips to help develop a robust business pricing strategy.
Remember - it is easier to reduce prices than it is to increase them...
..conversely, increasing prices if often a way to target a market more effectively. Your customers will have a feeling for what your product is worth, and how they value it. This feeling is known to economists as "Price Sensitivity" and it can be mapped so that you can predict the impact of a price increase on the number of customers you will retain and how that will effect your profitability. By putting up prices you are likely to lose customers but you can also gain customers and increase profitability.
Unless you have very deep pockets and a competitive motive; or a definite advantage that lets you sell at a lower than market price, try to avoid a price war.
Carry out research into pricing
When you consider competitors think laterally, as the most obvious competitors that you believe you have aren't the only ones you have. A competitor is any company competing for the same time or money from the same target market. Your customers have choices about how to spend their money so look left and right at different sources of competition.
Quality vs Price
People mistrust things that are too cheap, and get a bad impression about products that are perceived as over-priced. You pricing strategy should reflect your overall offering, so if you are trying to deliver a high-end product to a sensitive market, make sure everything you do reflects quality at the appropriate level.
Have a top of the range product
Customers will aspire to buy the best but often it's out of their price range. By offering a premium product and a lesser product, you might find that your products are valued at a greater price than you think. If people buy your premium product and demand increases for it you might consider nudging all your prices up.
Also, having a premium product is a way of increasing demand for the lower range products. people want the best but settle for second best. Research into buying behaviour shows too that people enjoy a sort of "value glow" from owning a product that is associated with another at a higher price.
Don't just reduce costs if you want to increase sales
Generally speaking, think long term, not short term. There better ways to attract sales than just changing the price. Consider your entire pricing model - it's not about the price on the ticket. For example, you might offer a superior service, or bundle products into an added value offer; clothing companies do this all the time by offering accessories at reduced rates to match large, single items. You can also add value with future upgrades, or replacements, a loyalty scheme or a simple guarantee to make people value your product in a different way to the competition.
Embrace your pricing
The more you work on pricing, the broader the range of tools you will have to compete. As you get more in tune with pricing you will become flexible, and be able to move faster to make confident, effective changes in the future.
If you would like any help with your pricing do get in touch. We're always here to help.