Welcome to our blog, where we explore the nuances of pricing strategies and how they can impact your product or service’s success. Pricing is a crucial component of any business, yet it’s often overlooked or undervalued. The right pricing strategy can help you maximize profitability, attract and retain customers, and gain a competitive edge in your industry.
In this blog, we will delve into the world of pricing and share five proven strategies that you can use to optimize your product or service pricing. We’ll explore the benefits and drawbacks of each approach, so you can make an informed decision that aligns with your business goals and values.
Whether you’re launching a new product, repositioning an existing one, or simply seeking to improve your pricing strategy, our insights, and practical tips will provide you with the tools you need to succeed. We’ll cover everything from value-based pricing and cost-plus pricing to dynamic pricing and penetration pricing.
Pricing can be a daunting topic, but it doesn’t have to be. With a solid understanding of the various strategies available, you can confidently set prices that reflect your product or service’s worth, resonate with your target audience, and drive long-term success.
Join us on this pricing journey, and let’s explore how you can optimize your pricing strategy to take your business to new heights.
1. Don’t Undercharge For Your Product Or Service
First-time small business owners often fall into the trap of undercharging for their services due to their awareness of being new and small. They fear appearing presumptuous or daring, so they set low prices. However, setting prices too low can lead customers to perceive their products or services as of inferior quality. Moreover, it sends a message that the business lacks confidence in its own offerings.
The major error made by newcomers is believing they can start with low prices to establish a presence in the market and then gradually raise prices as they gain traction. Unfortunately, this strategy rarely works as intended. When you enter the market at a certain price point, customers will associate that price with your product and expect to pay accordingly. Increasing prices later becomes a daunting task because customers grow accustomed to paying a specific amount and are resistant to change.
If you think that going in with a low price will be a good idea then start by offering customers an introductory deal for a limited period of time only and make it absolutely clear and be strict about when that period of time will end.
However, it is a risky business to overtly link your product or service intrinsically to the price at all – if people are only buying your product because it is cheap, then they will instantly disappear when they decide it is no longer cheap, whereas what you should be aiming for is to build strong brand loyalty amongst customers, so they will make your product or service part of their lives and buy it regardless of price.
2. Find Your Level
Go out into the High Street or local shopping center and look at the prices being charged for products similar to your own. Think about whether you would be able to charge more, or less, and either way, why. If you are going to charge a premium price for your product or service, for example, then you need to make sure you are providing a premium product or service – if it isn’t up to expectations, then customers will resent paying a premium price for it.
3. Be Wary Of Discounting
Once you have set your price, don’t be too quick to offer discounts unless there is an excellent reason to. If you feel you need to offer a discount for bulk orders, reduce the total cost to the customer in other ways, for example by offering free delivery rather than lowering the unit price.
4. Ask Advice From The People Who Know
If you are thinking of selling your products via a high street retailer or supermarket, there is a brilliant – and completely free – way of finding out what you should be charging; simply go and ask them what they think. Providing they are running a successful venture themselves, they will know everything about the market they operate in, and so they will know exactly what price they could sell your product at, and how it compares to the competition. They will probably even tell you how many you can expect to sell in a given time period.
Then you can work backward and work out at what price you will have to sell your products to the retailer – say 50% of the retail price – and therefore whether you will still be able to make a profit on these numbers. And therefore whether it is actually worth your while to sell your product in this way. Even the biggest retail stores will be happy to offer their advice for free if you have a product that could be of interest to them.
5. Location Matters
Remember that the price you can get for a product is likely to differ markedly depending on what type of environment you are selling it in. You will be able to get a much higher selling price for your product in an upmarket boutique for example than you would sell it on a market stall.
However, that is only half of the story. You are not only interested in what the final selling price is, but you are also interested in how much of it will find its way back to you. Your scarves might sell for £20 in a boutique for example, and only £12 on a market stall, but if you are only getting half of that £20, in other words, £10 for every scarf sold in the boutique, while you get to keep all of the £12 you sell your scarves for on the market stall, then you will be better off selling them on the market stall.
If you are planning to sell directly to your customers, the simplest way to set the price of your product or service is to ask them how much they would be prepared to pay. You don’t have to pay an expensive consultancy to do this for you – you can assemble your own focus group by inviting a group of friends and acquaintances around for an evening and ask them what they think. Give them a range — say £15, £12.50, and £10 — to pinpoint their responses.
You can also get some useful responses by standing in the street and asking people passing by for a moment of their time. Choose a time and place where people are strolling by in the afternoon sun rather than rushing past their lunch break.
This process will also enable you to gauge whether it is simply the price that would stop people from buying your product, or whether it is something more fundamentally wrong with it.
Things To Consider
In general, there are five things that will enable you to charge more than the competition for your products or services:
- Convenience – if your product is right in front of me and so is saving me the time and effort of walking across town in the rain, I will probably buy yours even though it is a bit more expensive. This is how city center express versions of supermarket chains are able to charge more for the same products than their big out-of-town versions.
- Solving a problem that rival products don’t – or at least doing it in a more elegant or efficient way.
- Being better made, or more durable.
- Having a technological edge.
- Being new or being regarded as being fashionable or cool.
If in doubt, price high and adjust later. It is much easier to do it that way than the other way around.
When faced with the daunting task of determining the optimal pricing for his eponymous watches, Christopher Ward devised an unconventional experiment. He strategically placed three advertisements for identical watches in various newspapers over a single weekend, each showcasing a different price point. The first ad listed the watches at £99, the second at £179, and the third at a staggering £849.
Interestingly, it was the £179 price tag that garnered the most attention and generated the highest sales. Armed with this valuable insight, Christopher Ward made a bold decision. He set the final price for his watches at £179, going against conventional wisdom and defying the expectations of those who were willing to pay a much higher price.
In a remarkable display of integrity and customer focus, Christopher Ward promptly refunded the four individuals who had originally intended to purchase the watches at the inflated price of £849. This act not only solidified the reputation of his Christopher Ward watch firm but also laid the foundation for its subsequent success.
Today, Christopher Ward’s watch company proudly embraces the moniker “the cheapest most expensive watches in the world,” and rightfully so. With an impressive annual turnover of £4.5 million and a dedicated team of nine employees, the brand has established itself as a formidable player in the industry.