Last week we chatted about your brand suite. This week, we are going to chat about one of the most critical decisions you will make for your business: price. What will you be selling your product or service for? There are so many considerations you will need to factor in to decide what will make you the most profit at a price people or organizations are willing to pay.
Intro: pricing strategies.
Pricing strategies are ways in which you price your product or service considering elements such as demand, consumer value, or volume. Author and SaaS pricing guru said, “Pricing is the exchange rate you put on all the tangible and intangible aspects of your business. Value for cash.” Selling the right product or service at the right price (as determined by the buyer) is the best way to ensure you are maximizing revenue.
What are some pricing strategies, you ask?
Let’s dive in to a few.
Price Premiums
Intentionally setting your pricing higher than the market and/or competition is a strategy in building value for your product. While we know it isn’t always true that more expensive equals better, this can certainly be the perception for buyers. If you were to position your brand’s pricing slightly higher than everyone else, you will attract a specific buyer who is looking for those premium brands.
Another way we can see premiums on pricing are for peak-demand times. We can see an example of this at spas, who charge higher rates for services on weekends than they do during the week. This gives an incentive to the consumer to book in slower periods to pay a lower price.
Additionally, you can create a premium version of your product. This gives your customer the opportunity to select from multiple models, ultimately deciding what they find to be the best value. In this case, you can even use a premium price to build value in the lower options. For example, if I want to purchase a car, perhaps the highest trim on the model I want is $75,000 but the next step down with very similar features is $65,000 – I would likely pick this one thinking I received a great deal because it’s similar enough but $10,000 cheaper (also ignoring that there is a base model available for $40,000).
The drawback to this strategy is potentially driving away business due to budget constraints. You will need to consider if the higher price justifies turning this other business away.
Customer Value-Based Pricing
This is recognizing your consumer’s perception of value for your product or service and pricing accordingly. Simply put, you determine what your customer base is willing to pay for whatever you are selling, and price it at this number. The Harvard Business School has a fantastic breakdown of this pricing style and how to use it to gain customer loyalty which you can review here.
Everyday Low Pricing
Retail giant Walmart and car dealer CarMax are leading examples of this pricing strategy. One low price, guaranteed, all the time. No haggling or bargaining. No hunting for better deals or coupons. Just the best price the company represents that they can do, all the time.
Another approach to this is locking your prices. TempurPedic, for example, is a product which is not discountable by salespeople like many other brands are at retailers like Mattress Firm. Speaking from experience, selling at TempurPedic at a discount is a serious offence (so serious, in fact, it’s one of the reasons TempurSealy parted ways for several years from Mattress Firm). The idea is that the price they sell their product for is the best price they can offer, and you can take solace in knowing that you aren’t missing out on any deals or discounts.
Price locking can even be a strategic marketing move. Major European grocery chain Tesco just announced they will be locking the prices over 1,000 products as a means to curb inflation affecting their shoppers.
Competition-based Pricing
One of my favorite memories of working as a commission sales manager was shopping out competitors. I would make up a persona, drag another salesperson with me to be my fictitious partner, and go through the sales cycle from the other side. This gave me deep insight into sales techniques, and services offered, but most importantly, price.
When you are selling something and not using premium pricing to target a specific market, it’s imperative that you understand your competition’s pricing model. This isn’t necessarily to copy it – you may have a Point-of-Difference that substantiates a price hike. It is, however, good information to reference when you decide on your pricing strategy. If you want to remain competitive, you will want your prices to fall within a similar scope to the competition. If not, you need to have a way to explain the value difference associated with the higher prices.
If I was located across the street from my competitor, I would want to know what they are going to offer my customer if I don’t close the deal. Alternatively, I would like to be loaded with the information before I speak to the client, so I know how to handle pricing objections.
Interestingly enough, one sales role I was involved in within the hotel industry actually encouraged this type of transparency between competitors. It may sound counterproductive, but we would invite those sales managers to our property for a tour and provide pricing, and they would extend the same courtesy as us. The idea was that if, for one reason or another, a customer wasn’t the right fit for us, we would at least continue that relationship of trust be referring them to something that would work for them. In turn, others would return that favor.
Weird, I know, but I can’t tell you the number of deals I closed in a market where competitors were also friends.
Sum it up
This definitely isn’t a full, comprehensive list of different pricing strategies. Instead, it is a jumping off point. It’s a frame of reference to get you to think about how you want to price your product or service. Do you want to be the most expensive out there to increase the perception that your product is superior? Do you want to give buyers peace of mind that the price is the best you can offer for all time to everyone? Do you want to price yourself in accordance to who you are selling against?
Answering these questions are the best way to decide which, if any, pricing strategy you want to use for your business. There are plenty of resources out there to learn more about pricing strategies, but my favorite is from HubSpot called “The Ultimate Guide to Pricing Strategies”. In it, the CRM organization runs through a gamut of information to give you the tools you need to price your product or service appropriately.
What factors do you find most important when deciding on a price for your widget?
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