5 Ways To Get The Right Price Strategy
Many things have changed in the business world but one thing remains constant: having the right price strategy for your business is critical. In fact, in today’s cutthroat business world, it can mean the difference between ongoing success and inevitable failure.
Price Strategy: See Into the Future
While many flailing companies today seem to believe that the four P’s of marketing are pray, pray, pray and pray some more, effective marketing strategies have not changed. One of the four P’s of marketing is price. A great pricing strategy isn’t just throwing out some numbers and hoping. Taking the time to set the right prices will pay off down the road.
First, you must have a way of finding out what the customer believes they will get when they purchase your product or service. This is also known as your target segment. It’s a little bit like trying to see into the future. This perceived value can then be added to what other customers are currently paying for similar items or services.
The third part of this combination is the actual amount that it costs you to get or provide the item or service. When you add all of these together and take a good look at them, you should end up with something called perceived value, or what customers believe it is worth.
Get Inside Their Heads
Taking a look at the psychology behind purchasing is another way to make your pricing strategy more effective. For instance, while many companies still offer price comparisons as a way to drive sales, one recent study has found that this may actually be the worst thing you could do. This study found that consumers who are left to make their own price comparisons ended up spending more than consumers who were simply given the prices to compare (who all too often, simply did not purchase either option).
How about the fabulous number nine, does it really help to increase sales? Consumers today have so much information available – surely, they have seen news stories or social media links explaining the power of ending the price of an item with a nine.
One marketing professor who taught at Rutgers Business School recently found that ending a price with the number nine did have “a considerable effect on sales.” While the psychology behind the nines has not been completely explained, there is no doubt among marketers that it has very real power.
Using an effective high-low pricing strategy is yet another way to positively affect your margins as the lower priced items gain attention and customers begin to noticed the higher priced, more attractive options as well.
It’s a Time Thing
Thinking about your effective pricing strategy solely in terms of dollars and cents could lead you to missing out on increased revenues. One recent study found that time has more value to consumers than marketers had anticipated.
In fact, in today’s fast-paced world, almost every consumer is looking for ways to save time. To make the best use of this new information, experts suggest that advertisements for a products or services focus more on the time a consumer will save, spend, or enjoy rather than on the price of the product.
Pricing Strategy: Don’t Cheap Out
Doing the legwork to find out what comparable items or services are selling for is still an incredibly important part of creating a pricing strategy. Basic intuition would compel most of us to find the lowest price that is available and set our prices just a little bit lower.
As it happens, this is not the way to boost revenues. In order to ensure that your price strategy will end up in a positive cash flow, you must take into account the following:
- Production overhead
- Sales costs
- Profit Margin
- Admin and financing costs
- Marketing costs
Many times, customers see the lowest price as the “budget option” and pass right by. One recent article reviewed the information gained by interviewing 28 entrepreneurs with a net worth of one hundred million dollars or more. One of the most important pieces of information gleaned from these interviews was the fact that half of the businesses succeeded by setting higher prices based on additional value.
Set Your Stage
The most well-known case study for context-based pricing involves beer. You may be scratching your head and wondering if any dependable information can be gained by offering people some Budweiser! As it turns out, the study was able to prove that thirsty beachgoers were willing to pay more for the exact same can of beer if they knew it was going to be purchased from a nice hotel as opposed to a run-down grocery store nearby.
While your business may not be marketing beer, you can certainly use the information gained about pricing potential. By taking the time to evaluate the key differentiating factor of your business, you will be able to make sure that the context in which you are selling your product is at its optimal level.
Because your pricing strategy is likely to make such a large impact on your business’s bottom line, you cannot simply set it and hope to break even. High gross margins not only add value to your company, they attract possible investors as well. By keeping up with current and upcoming marketing trends, your pricing strategy and margins can successfully ride the wave of our ever-changing economy.
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