In today's tough economy, your pricing strategy can be everything. It can be the difference between striving and falling flat, between soaring and completely crashing, between being the next big thing or next big flop. Price too high, and no one will buy. Price to low, and well, you will loose money with each go. With all rhyming aside, your pricing strategy can have a major impact not only on the profitability of your business, but also on how people perceive your goods or services. While pricing alone doesn't drive sales, it certainly plays a key role in the process. There are many things to consider when crafting your pricing strategy. "The first question to ask is not, What should the price be?" as Professor of Business Administration at Harvard Robert Dolan writes, "But rather have we addressed all the considerations that will determine the correct price? Pricing is not a matter of getting one thing right. Proper pricing comes from carefully and consistently managing a myriad of issues." Be prepared to consider MANY things when determining the perfect pricing strategy for your goods or services.
Establishing the Right Pricing Strategy For Your Small Business
Be Consistent
If a customer saw just your price and nothing else, what would they think? How would they perceive the type of good or service you are selling by just the dollar amount? Price should hence be the first line of your message to the consumer, and thus needs to be consistent with your overall brand image. Both Swatch and Saturn use a low affordable price to give their products an air of approachability. At the same time, Mercedes' price marks it as both luxurious and high-class, (something they wouldn't necessarily achieve with a moderate price tag). For this reason, before pricing you need to determine what exactly you wish to portray about your product. If you want it to be perceived by its quality, maybe a high premium price tag would be the best play. But, on the other hand, if you want to highlight a product for its functionality, a lower, more moderate price tag might better do the trick. Your pricing strategy, like all other elements of the marketing mix, must work in collaboration with the overarching strategy and not against it.
Put Yourself in the Customer's Shoes
When attempting to determine a pricing strategy, sometimes the best bet is to take a step back and see the product with your customers' eyes. As Dolan notes, it is a common pricing pitfall to simply factor how much a product costs to make, add your desired profit margin and then like magic, establish a price. The fundamental problem with this method is that it completely ignores one of the most important pieces of the whole pricing puzzle: the customer and how much he or she would be willing to pay for the product or service's perceived value. We must remember that regardless of the product, it will be perceived by different people, in very different ways, at very different values. Furthermore, different people will have not only different uses for the product, but also very different levels of price sensitivity-all of which must be considered when constructing a pricing strategy.
