Brainbox

How to create a winning pricing strategy in just 3 steps

How to create a winning pricing strategy in just 3 steps

Believe it or not, more companies than you can imagine set their prices without much thought. This is a mistake that makes them leave money on the table from the start. The good news is that taking the time to price your product/service correctly can act as a powerful lever for growth. 

Here I leave you this super practical guide that will help you define a pricing strategy that makes sense for your business. Keep reading! 

First of all… what is a pricing strategy?

Pricing strategies refer to the processes and methodologies that companies use to set the prices of their products and services. If price is how much you charge for your products, then product pricing strategy is how you determine what that amount should be. There are different pricing strategies to choose from, but some of the most common include:


  1. Value based pricing
  2. Competitive price
  3. Market “skimming” prices (highest price at launch and decreases over time)
  4. Cost-based pricing (cost + margin)
  5. Market penetration prices
  6. Low prices
  7. Dynamic price that increases or decreases with demand. 

An winning price strategy

Show Value

Be careful with the word “cheap” because it has two meanings: It can mean a lower price, but it can also mean poorly done. There's a reason people associate low-priced products with cheaply made products. remember the relationship price-value! One thing is what your product/service costs and quite another is what it is worth. Identify the value of your product and then define the fair price.

Convince your customers to buy

It is so! A high price can convey value, but if that price is more than your potential customer is willing to pay, the value of your product/service may be irrelevant. If your product is perceived as cheap, it will be overlooked because it may be perceived as poor quality. The ideal price is one that convinces people to buy your offering over similar products that your competitors have to offer.

Give your customers confidence in your product

If higher priced products represent value and exclusivity, then the opposite is also true. Prices that are too low will make it look like your product is not well made. You must be very careful with the balance between price and value.

 

On the other hand…a weak pricing strategy:

Does not accurately reflect the value of your product

Think of all you've worked to get here to achieve a winning product! You have to be able to determine its value and assign a fair price. Take the time to identify it well! Otherwise, you will be labeled as expensive or cheap and make your business model not as successful as it can be.

Makes your customers feel insecure about buying.

Just as the right price is one that customers quickly pull the trigger on, too high or too low a price will cause second thoughts.

Targeting the wrong customers

Some customers prefer value and others prefer luxury. You need to price your product to match the type of customer you are targeting.

What are the top 7 most common pricing strategies?

Well, you are already 100% clear about the value that your product or service has for your potential customers, right? Now comes the second part: Which of the pricing strategies best suits your business? Here I leave you the 7 most common with a brief explanation so that you can study the one that best suits your offer:

Value based pricing

With value-based pricing, you set your prices according to what your potential consumers think your product is worth. This strategy is super common in technology businesses or Saas (Software as a Service) 

Competitive price

When you use a competitive pricing strategy, you set your prices based on what the competition is charging. This can be a good strategy in the right circumstances, such as a business that is just starting out, but doesn't leave much room for growth. Ideal to start with, but little by little you must find your place in the market and adjust, it is important to study this alternative SUPER well so as not to have to correct prices downwards

Market skimming prices:

If you set your prices as high as the market is likely to tolerate today and then lower them over time, you are using the price skimming strategy. The goal is to remove the top of the market and the lowest prices to reach everyone else. With the right product, it can work. Typical in technology manufacturers too. Do you remember how much an AirFryer cost in the beginning? 

Cost prices = mark-up:

This is one of the simplest pricing strategies. You simply take the cost of producing the product and add a certain percentage. While simple, it's less than ideal for anything other than physical products.

Market penetration prices:

In highly competitive markets, it can be difficult for new businesses to gain a foothold. One way some companies try to push new products is by offering much lower prices than the competition. This is the price of penetration. While you can get customers and decent sales volume, you'll need a lot of them, and you'll need them to be very loyal to stick around when the price goes up in the future.

Cheap prices:

This strategy is popular in the commodity sector. The goal is to price a product cheaper than the competition and make money back with higher volume.

Dynamic price:

It occurs when the price of the product/service varies according to demand.

 

Is it a good idea to offer free products or services? What are the pros and cons?

Offering free trials or free versions of your service or product has always been a very interesting form of marketing. After all, if we want a potential customer to try our product, if we give it to them for free, we have a good chance that they will try it. And perhaps, that later they buy or recommend our product to other potential buyers. Sounds like an effective strategy right?

In principle, this strategy can make us known in the market and attract buyers, but it can also cause some loss of income for our business. Therefore, we must know the margin in which we operate so as not to incur losses.

But you should always keep in mind that this is a customer ACQUISITION model and is not part of your pricing strategy. 

How to create a winning pricing strategy... it's easier than you think. It's only 3 steps:

Find the value metric of your product/service
Establish ideal customer profiles and segments
Complete research + user experimentation

Step 1: Determine the value metric of your product/service:
A "value metric" is essentially what you charge. For example: per seat, per 1000 visits, per CPA, per GB used, per transaction, per hour, etc. You can be wrong in everything else and we can correct it, but not in this! You should get the correct value metric.
A pricing strategy based on a value metric (versus a monthly tiered fee) is important because it allows you, for example, to ensure that you're not charging a large customer the same as you would a small customer.
To determine your value metric, think about the ideal essence of value for your product: What problem are you solving, is it quantifiable? What value does your product/service have directly for your customer? For example: it saves money, it optimizes their time, the joy it brings them, it improves their physical condition, etc. I know that it is difficult to measure these super intangible benefits but we must find a measure for that value and get your potential customers to trust it! If your client trusts your measurement, for example, you tell them that they will save $100 and they agree that it saved them $100, CONGRATS!!! That is your value metric. Did I explain?


Step 2: Determine the profiles and segments of your potential customers

The second key component of your pricing strategy is determining your segments and ideal customer profile. I see it!!! We have all heard of Buyer Personas and you may have serious doubts about whether they are useful or not! I guarantee you they are! However, it is likely that we have not done it right and that you have focused more on the qualitative than on the QUANTITATIVE! But when used correctly, Buyer Personas and Quantified Segments are super efficient tools for determining your ideal profiles and segments. 

This methodology is not reserved for large companies with historical data that allows them to have this mapped in detail. If you do not have all the information you would like to have, do not be paralyzed, surely you know SOMETHING about your ideal consumer and little by little with much, much feedback you will be able to get to know them better.

After determining the profiles and segments of your potential customers you must validate (or invalidate) the most urgent hypothesis in your spreadsheet based on the decisions you are about to make. If you're going to validate a new product for a particular segment, that's where you should start. Is price the most important question? Start by researching the price with each of these roles/segments.

Step 3: research + experimentation

After having the first 2 steps ready and defined, comes the final part, which is to set the final price or what we call Monetization. This last step is extremely tactical and 100% research based. Figuring out your price involves researching those segments and then making decisions in the field. The same goes for discount strategies, accessories and packaging. The point: monetization never ends because it is the very essence of translating the value of your product/service into an optimal framework for your target customer segments. 

The recommendation is to constantly implement, research, listen and optimize. 

What are the most useful tools when putting together a pricing strategy?

If you are venturing into the subject of pricing strategy, it is very likely that you will need the help of a digital tool to be able to carry it out. These are some of the best options you will find:

Boardfy

It is one of the most popular platforms for price monitoring. With its help, you will know what prices your competition manages in the different types of marketplaces they use.

It also allows you to update the prices of your virtual store in real time and improve the price strategy that you have created in Google Shopping. Although you must pay to use it, it has a 7-day trial. Don't waste it!

Minorest

This tool allows you to make a historical comparison of the prices that the market is handling. Of course, you will also be able to know what a certain product costs in your competition. 

The most striking thing about this platform is that it offers you analysis services by country, city, and business sector. Take advantage because it has a demo version! If you want to pay, there are different types of plans and budgets.

crawl it

Have you heard about SEO? Although it is mainly used for web page blogs, it is also being implemented in e-commerce. With this platform, in addition to analyzing price catalogs and campaign tracking, you can optimize your content and your strategy. Thus, you will get your products to attract more attention from users.

There is never an unbiased approach to setting a pricing strategy, as not all pricing strategies will work for all types of retail businesses; each brand will have to do their math and decide what works best for their products and market segmentation.

The good news is that now that you have a better understanding of some of the most common pricing strategies for retail businesses, you can make a more informed decision. 


“Price is what you pay… Value is what you get”

Warren Buffett 


Do you need help with this or any other issue with your business? Follow me on @grlbuzz or write to me at: dahlia@grlbuzz.com 

 

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