Pricing is one of the crucial strategic decisions that can easily be neglected.
It is one of the three most significant strategic decisions an executive makes, right up there with brand codes, target market segments, and position in the overall market.
Your price manifests these decisions for your target market. Why? Price is a signal.
It tells your market whether you are a premium product or a budget service. Price conveys to your target market what your position is in the market.
The price you set can tell your audience that you are top shelf or just ‘average’. It can underline or undermine your brand equity.
Underline by being consistent with your strategy and undermine by using price as an afterthought to your plan. Why am I mentioning this?
Your price impacts the delivery of your strategy in three critical ways: awareness, perception, and profits.
Awareness matters – customers can’t buy from you if they don’t think about you when they are ready to purchase.
In business-to-business sales, if you aren’t in the three to four business considerations set when the research phase happens, no amount of persuasion will help.
The average business I work with finds that it takes 11-13 touchpoints before a customer buys. Both examples highlight the importance of awareness. This is why I remind everyone to always remember the two iron rules of marketing.
The 60/40 rule states that your marketing mix should consist of about 60 per cent brand building and 40 per cent sales activation.
The 95/5 rule states that only 5 per cent of your business-to-business customers are in the market for your services anytime.
Perception can make you, and it can also break you. The perception your price creates can help you or hurt you in several ways.
Your price can shift or underline the perception of value in your target market. It can also signal whether you are high-quality or low-quality, a good value or a poor value.
This is one of the reasons I tell you that the price-setting moment is marketing’s MVP moment. It can define perceptions of you.
The final factor to consider is the pricing is equal to profits. This magic equation is why I tell marketers to fight for their place in the pricing conversation.
For every 1 per cent of the price you maintain or increase, your profits improve by around 11 per cent. This has been studied many times and tracked with my work.
The opposite also applies; for every 1 per cent you discount, you lose 10 per cent or more of your profits.
This has been studied and observed many times. Discounting can destroy your brand and is the fastest way to undermine its perception. it also eats away at your profitability
Remember that it’s not about what you make but what you keep!
These three intersections make me say, "Discounts are for dummies!”
Where does pricing strategy come into this? First, there is the ‘Endless Growth Trap’. It's the idea that the only direction sales can go is up.
It is often said that anything other than increasing sales is a disaster; however, this isn’t true. You can make a significant amount of sales and collect little profit.
The reality is there is a finite number of opportunities, and the buyer’s path is long and, in many examples, is getting longer. Your branding efforts take time to root themselves; however, your price can tear these efforts down quickly.
Strategy is about three key ideas:
Focus: What does success look like?
Consistency: Are you delivering in line with that focus again and again?
Through Line: Are you staying focused on the strategy evening when inevitable change occurs?
Your price sets should reflect your focus. Who is it for? What do we want our position to be?
It should also underline your brand. Are we showing up how we want to? Does our market see us the way we want to be seen?
Your price should help you achieve success and so, take the time to ask yourself these questions.
- Is your business selling at the right price?
- Is your business signalling the right value?
Does the cost of your products and services act as a strategic weapon, or is it scattered and inconsistent?
Are you charging the right price?
What is your biggest fear when quoting a price for your products and services? Do you worry that it’s too high? Are you afraid of what your competitors are charging for similar products? Are you concerned that other businesses are charging an hourly rate?
Many businesses are dominated by relentless negative self-talk. I’m sure you’re familiar with this kind of thinking.
“I’m a small business; there’s no way my customers will pay this price. If I don’t offer a discount, they’ll walk away. I can’t possibly justify quoting the right price because it will only take me an hour to finish the job.”
These are all pricing myths and misconceptions. Below are several quick ideas to help you set better prices for your business.
Consumers buy due to the intangible and tangible value, even when shopping on price. Sometimes, if the problem the product addresses isn’t super important, the cheapest option wins.
In other cases, no price is too high because the issue is so very important. Competitive advantage is life or death to a business.
One is a commodity, and one is an advantage. Focus on the essentials and don’t sell based on arbitrary units. Lawyers do this with their ridiculous embrace of the ‘billable hour’. Don’t be like a lawyer!
Apple doesn’t price iPhones based on the number of phone calls you make; they sell iPhones for the price. It would be best if you thought about how you can do the same.
Price according to the service or the product you deliver, not the arbitrary unit of time it might take you to provide the results. Don’t fall into the trap of comparative pricing. What is being charged by your competition is irrelevant to your business.
Charge what you are worth and what you think is fair! It could be possible that your competition has a different strategy.
The market may place a different value on your business than your competitors. What the competition is doing is irrelevant unless you are a commodity. That’s a story for another day.
Don’t discount: There are so many reasons not to discount. Whether it’s lost profit, lowered brand equity, or the rising difficulty of future sales, you do not want your store to be viewed as a discount location.
There are always customers who will want to haggle with you and beat down your price. Don’t let that attitude impact your business' overall image. So, what is your biggest pricing challenge? What makes you afraid to quote the price you know you deserve?
Are you asking the right questions?
Pricing is a critical yet often overlooked strategic decision that directly impacts the perception of your business, its market position, and profitability.
The price you set signals to your target market whether your product is premium or budget, affecting its perception. A well-considered pricing strategy will align with your marketing efforts and influence a range of areas in your business, including the all-important profitability.
Discounting hurts your bottom line and damages your perception among consumers. It also sends the wrong message about your products and services, especially regarding jewellery.
Avoid arbitrary or comparative pricing; instead, set prices that reflect the true value of your business and its offerings.
It's time to ask the big questions about your pricing structure.
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