The Pricing Dilemma
By Victoria Munro
You’ve designed a new service or product, but how do you decide what to charge for it? You know your success depends on sales, and sales depend on pricing. If you charge too much, no one will buy it; and if you charge too little, potential buyers might be suspicious of your offer, and you may not make a profit. There are almost no hard and fast rules. Pricing is definitely an art not a science, but the following are some points to think about:
First, you need to list all your costs to produce the product or service. Don’t forget to include your time, any marketing materials, sales expenses and an appropriate portion of your overhead costs, and a profit margin that will allow you to continue growing your business.
Next, check out your competition. Find out what they offer, how it compares with your new product and what they’re charging. Look at their marketing strategy and how effective it is. If possible, talk to some of their customers. All this may require some research, but you need to be ready to explain why your product compares favorably with theirs.
Aiming to undercut your competition can be a mistake. New business owners especially have a tendency to undervalue their services and charge too little. But too low a price can hurt your credibility. Potential buyers may think there’s a catch—it’s too good to be true. Or you may appear desperate for sales. Buyers know that cheaper isn’t always better, and higher prices usually imply higher quality. People more often buy based on perceived value than price.
Choose your target market and find out what that market will bear. Decide where you’ll position yourself in the market. You might prefer to focus on a specific market segment. By tailoring your services to meet the particular needs of a small market niche that others may be ignoring, you may be able to charge more.
Get to know your target customers well. Understand their needs, the challenges they face and how your product can help them. Consider asking prospective and current clients directly what they would pay for such a product, and if and how it could be improved to give more value.
Differentiate yourself and your product. Find out and focus on what sets you apart. Create an image for your product. Is it a premium service? Does it have a unique feature that makes it stand out from the competition? How will your product provide greater value for the buyer? The price you charge should match the image.
If your product isn’t selling well and you sense it might be priced too high, think of ways you could increase its value. Perhaps by giving a discount—people love to feel they’re getting a bargain. Or include extra bonuses—giving something away free with a product can add value. Or, you might bundle several related products to sell at an appealing price.
Offer your customers choices, but not too many. Lots of options can cause confusion and delay or wipe out a sale. Given three choices, buyers will typically opt for the middle one. So be sure that one is profitable for you. Also, according to pricing experts, making your top offering very expensive makes your middle offering appear more affordable.
Don’t overlook the psychology of pricing. In his well-researched and very readable new book Priceless: The Myth of Fair Market Value (and How To Take Advantage of It), author William Poundstone cites dozens of revealing case studies and, after reading it, you’ll never look at pricing or shopping the same way again.
There’s no easy formula to find that pricing sweet spot. It may require trial and error. But think about the points above, stay alert to market changes, review your prices regularly and keep flexible, and you’ll be on your way to solving your pricing dilemma.
Click here for printed version.
To read more, check out Victoria's Blog.
Click the link below to forward
this email to a friend.