It can get difficult to set a price for your goods and services. If you set your prices too high, you’ll miss out on important sales. If you set them too low, you’ll miss out on a lot of money. Pricing, thankfully, does not have to be a sacrifice or a gamble. There are a plethora of pricing models and tactics that can assist you in better understanding how to determine the proper prices for your target audience and revenue goals.
What is a Pricing Strategy?
A pricing strategy is a model or method for determining the most appropriate price for a product or service. It assists you in determining the price that maximizes profits and shareholder value while taking consumer and market demand into account.
If only price were as easy to understand as its concept – there’s a lot that goes into it. Many aspects of your organization, such as revenue targets, marketing objectives, target audience, brand positioning, and product features, are taken into account when developing pricing plans. External factors such as consumer demand, competitive price, and broader market and economic trends also have an impact.
It’s not uncommon for business owners and entrepreneurs to gloss over pricing. They frequently examine their product’s cost of goods sold (COGS), compare it to that of their competitors, and adjust their own selling price by a few dollars. While your costs of goods sold and rivals are important, they shouldn’t be the focus of your pricing strategy.
Your profit and sales will be maximized if you choose the optimal pricing plan. Before we go into pricing techniques, let’s go over a key pricing idea that applies regardless of which strategies you utilize.
How to Create a Pricing Strategy?
A. Pricing Potential
You want to develop a plan that is tailored to your specific business. First and foremost, you must assess your price potential. This is an estimate of the product or service pricing your company could attain based on cost, demand, and other factors. The following are some of the aspects that can influence your pricing potential:
- Specifics of the geographical market
- Costs of operation
- Inventories
- Variations in demand
- Advantages and concerns in the marketplace
- Information on the population
In the next step, we’ll go further into demographic data.
B. Buyer Persona
You must price your goods based on the type of customer persona that is interested in it. When you consider your ideal consumer, you must consider the following factors:
- Customer Value Over Time
- Willingness to Pay
- Customer Dissatisfaction
Interview customers and prospects to learn more about what they like and dislike, and get feedback from your sales staff on the best leads and their attributes.
C. Historical Data
Examine your previous pricing approaches. You may compare the number of closed transactions, churn statistics, and sold products for various pricing strategies that your company has used in the past and see which ones were the most successful.
D. Value & Business Goals
You want to make sure the price is good for both your bottom line and your buyer personas when designing your pricing strategy. This compromise will benefit your business and consumer base more, keeping the following goals in mind:
Profitability improvement
- Boosting cash flow
- permeation of the market
- Increasing market share
- Increasing the conversion of leads
E. Competitors’ Pricing
You can’t come up with a price strategy without first researching what your competitors have to offer. When you see a pricing discrepancy for the same goods or service, you’ll have to choose between two options:
- Beat the price of your competitors – If a competitor is charging more for the same service as your brand, lower the price.
- Beat your competitors’ value – Also known as value-based pricing, you might potentially charge a higher price for your offering if the value delivered to the consumer is higher.
Conduct a complete competitive analysis to see the competition’s entire product or service offering, as well as their strengths and shortcomings, and adjust your pricing approach accordingly. So now that we’ve covered how to build a pricing strategy, let’s talk about how to apply these processes to various organizations and industries.
Applying Pricing in Different Industries
Every pricing plan isn’t appropriate for every company. Some tactics are more appropriate for tangible products, while others are more appropriate for SaaS businesses. Here are some prevalent pricing models for many industries and businesses.
A. Product Pricing
Physical things, unlike digital products or services, have tangible costs (such as shipping, production, and storage) that can affect pricing. A product pricing plan should take these costs into account and determine a price that optimizes profit, supports R&D, and outperforms the competition.
Pro Tip: When it comes to tangible products, we advocate using the following pricing strategies: cost-plus pricing, competitive pricing, prestige pricing, and value-based pricing.
B. Service Pricing
Due to their intangibility and absence of direct production costs, business services can be difficult to price. The ability of the service provider to deliver and the projected level of their job account for a significant portion of the service value. Freelancers and contractors, in particular, must follow a pricing plan for services.
Pro tip: When pricing services, we advocate adopting the following pricing strategies: hourly pricing, project-based pricing, and value-based pricing.
C. E-Commerce Pricing
Ecommerce pricing models are how you figure out how much it will cost you to sell your things online and at what price. That is, you must consider how much your clients are willing to pay for your online products as well as how much they cost you to buy and/or manufacture. You should also consider your online marketing campaigns for these products, as well as how easy it is for your customers to access similar products on your competitors’ ecommerce sites.
Pro Tip: When it comes to ecommerce pricing, we propose adopting competitive pricing, cost-based pricing, dynamic pricing, freemium pricing, penetration pricing, and value-based pricing techniques.
Conclusion
When evaluating new product ideas, formulating your positioning strategy, or executing marketing tests, you usually do a pricing study. It’s also a good idea to conduct a price study once or twice a year to compare your pricing to that of competitors and consumer expectations; doing so ahead of time prevents you from having to wait for poor product performance.
The biggest plus with market research is staying on top of trends and of course – the market! If your vision is to beat your competition, market research should be at the top of your list and Maction can help you with that. Book a call with us today to explore what a market research partner can do for you.
