Pricing is one of the age old challenges to be found in business today.
There are two streams of thought one is where your customers are extremely price sensitive and your pricing needs to be low. This works really well for companies like Walmart in the United States and Lidl a German low cost super chain in Europe for example, however the buying power of bigger organisations such as Walmart and Lidl far exceeds your average retailer. This means that your average retailer or business owner has to be very cognizant of their cost base so that they don’t lose money potentially.
What sometimes can be an issue when costing a project / product is that a business owner is not completely aware of their total cost base. They buy products with very low margins which has the knock on effect of making it difficult for them to make money. In a service based business, a business owner may not fully appreciate the level of time and effort in serving a client and can again miscalculate their pricing models.
Another consideration when deciding what to charge customers can be that pricing is also part of your overall branding and positioning in the marketplace.
Therefore if you claim to have a premium product / service and charge very little, customers simply won’t believe in the quality of what you are selling. Price is seen as an indicator of quality by many consumers.
On the flip side of the coin, if you have low cost pricing and claim to sell a high quality product / service, this can seem to be an unbelievable claim by consumers too. Low price and high quality seems like an oxymoron and consumers tend to think there is something ‘wrong’ with what you are selling and that this explains why the price is low. This type of pricing can inspire mistrust in your business and brand and really is not a long term strategy for business success. There are very few individuals who can get this dynamic working effectively in business!
At a very basic level in pricing there are three levels: (another blog will provide more in-depth information)
- Low cost pricing
- Benchmarked average pricing
- High end pricing
If you have NO IDEA where to start with your pricing, I would highly recommend that you do two things:
- Write a list of all the functional capabilities of your product / service (In other words, what do your customers physically receive from you)
- Write a list of the positive outcomes your customers will experience in their lives as a result of buying from you.
The combination and study of both lists will help you to determine the value of what you sell to the CUSTOMER and this in turn will help determine price.
If you have heard of customer value proposition (CVP) this is what it looks like.
At its core, customers are more interested in the outcome than the functional capabilities of your product / service
In essence, customers simply need to know that you can provide a positive experience for them as a result of buying and using your product / service
Please comment below if you have any questions / suggestions