It’s not wise to raise prices without first doing focused research of market conditions and trends. You need to understand your customers, and how you differentiate yourself within your market, before designing an effective pricing strategy.
The reason you own a business is you to make money, and making money means generating enough revenue from selling your product so you can cover all the costs and make a profit.
Take the time and ask yourself these FIVE KEY questions.
1. Do you understand what sets you apart?
Do you know who your competitors are and what exactly they offer? Why are you and what are you selling that is different? How do you stand out from your competition? You must not only know the answers to these questions; but be able to communicate them convincingly to your customers in order to maximize your pricing power.
2. How accepting is the market of your pricing?
In other words what is the pricing range already established for similar or comparative products and services? This will be a good indicator (and note I say indicator), as to whether you will be able to price your product or service to make a profit. It’s important to talk to your customers and find out what they are willing to pay.
A small business owner I spoke with recently found out directly from his customers that if he were to provide a warranty on his product installation, he could beat out his competition and command a higher price.
3. What are your customers’ expectations?
Without customers, you won’t sell anything ~ and you will not need a pricing strategy! When deciding on pricing, determine what it is your customer truly wants from your business. What are their expectations? Are they value shoppers; best value for the price, or will they buy only on price. Will they pay more for excellent customer service, will a good buying experience add value to your product?
The same business owner also found out that if his customers had an enjoyable orientation lesson to learn all about the product, this buying experience would set him apart from his competitors who were selling a comparable product!
4. Is there a way to pitch several price points?
Two or three options priced differently will allow customers to feel in control of the buying process, and make comparisons between products. Three price points; expensive, inexpensive & somewhere in the middle will often drive sales to the middle price point, which if a business understands and targets their offering, they can position themselves to take advantage of this.
A small local art gallery decided to price their art inventory at three price points. They found that the middle price point sold 10 times better than the lower price and the higher price. In addition, their sales overall doubled compared to when they had a random pricing strategy of about 40 different price points!
Caveat: If you try this online, be sure and have different images for the different price points (showing different features and benefits), or you’ll lose credibility, and sales!
5. Should pricing be an on-going initiative?
By being aware of changing markets and changing customer dynamics you can adjust pricing to remain in sync with your customers. Stay current with what your competitors are charging, but by being innovative, offering additional services, designing a great customer experience and getting ongoing feedback from your customers, your pricing strategy will be more influenced by your relationship with your customers, and your ability to sell to them, than be driven strictly by competitive and market analysis.
What I’ve learned working with businesses, collaborating with them to determine the right price, is there is a right price! Include the ingredient of an excellent sales process, get out of the building and talk to your customers, do the analysis on costs and your competition, and then try it out with your customers. If it doesn’t work, do a reality check, make changes and try again. Chances are if you’ve paid attention to the five key questions here, your price will be right!