You can't be everything to everyone — rule number one of running a successful business. Pricing is more than a value you add to your products. It affects the way you market, your brand perception, and buyer significance.
Price your products too low, and you could end up losing profits and going out of business, and on the other hand, pricing your products too high, and you could turn away customers from buying.
It's all about finding the right balance of things.
Professor Charles Toftoy, from George Washington University, once said: "It's part art and part science."
If you're looking for a way to find the "right price," then you're in the right place, here's a seven-point pricing strategy to learn how to find the right price for your products/services!
1. Know Your Target Audience
First, ask yourself, who exactly is my ideal buyer? Once you have a detailed answer to this question, you're on the right track to pricing your products effectively.
Whether you know it or not, your pricing is a signal.
It has the power to attract or repel your target audience.
For example, take a look at Nike and A.S.O.S. Activewear, two brands that are known to be one of the biggest brands in clothing and footwear. They both have two different target audiences and price points.
Why? They know who their target audience is, and their prices send a signal to them.
Nike's target audience is athletics or persons who are into all forms of fitness. Their target audience is focused more on practicality and performance, which is expected when an Olympic medal athlete or mom doing yoga wants to invest in a brand that will provide quality footwear and clothing.
When we look at A.S.O.S., prices are far more affordable than Nike because of their target audience. Their buyers are around the same age, but their not athletes, their everyday shoppers who just need simple active wear to hit the gym now and then. For them, it's more about making a fashion statement rather than performance.
What are your prices currently doing, attracting, or repealing your ideal customer?
Knowing who you're selling to can give you an idea of what price point is expected from your business. If you want to know who your target audience is, it's time to build a buyer persona.
A buyer persona is a list of characteristics or a lifestyle of your ideal buyer. This person should be as realistic as possible, not someone you imagine to exist. For example:
Practical: Single mother of two who works as an executive manager with a high income. She shops at high-end clothing stores and occasionally brunches with friends or family on Sunday. She attends art events and loves making home cook meals.
Unrealistic: 18-year-old woman with an intern salary that shops at high-end clothing stores and attends art events. She spends over $1000/month online and enjoys fishing and mountain climbing every morning.
Do you see what I'm saying?
Build a buyer persona but taking a look at your current or past customers. Try using a survey or look at the type of people who engage with your ads. Make real-life notes on who your target audience is with examples like:
Likes and dislikes
Products and brands their love/loyal towards
Why they fit your target market
2. Know Your Industry and Market
Knowing your marketing or industry can give you key insight into what and who you're selling to in the long run. Market research is one of the first steps you should take when writing a one-page business plan or looking for a way to define your niche.
Investopedia states, "Market research is the process of determining the viability of a new service or product through research conducted directly with potential customers. Market research allows a company to discover the target market and get opinions and other feedback from consumers about their interest in the product or service."
Going in blindly and stating, "I'm pricing my item at X because that's what I think it's worth!"
I'm all for knowing your worth, but with a method like that, you'll either be losing sales, changing your marketing, or attracting the wrong customers.
You can't ignore the fact that you're in an industry that has a range of prices and demands that are expected from you. Knowing your industry allows you to avoid pricing too low or too high.
Yes, your industry "can" dictate what your prices should be, but knowing them with the help of market research can allow you to understand why. And if you decide to price higher or lower than data will help you to understand how to strategically market products.
Let's say that you sell cupcakes (stay with me), a baker three blocks down, sells cupcakes for $1.00, another for $20, but you've decided that you're selling your cupcakes for $100.
There's nothing wrong with that statement. However, if you're charging $100 for cupcakes in a market that regularly costs $1-$20, they have to be worth it.
You'll have to ensure that the quality ingredients, services, experience, and marketing can attract your target audience if you plan to dominate the luxury section of your market.
Tip: Find out what's the highest and lowest value of the products in your market.
3. Know Your Competitors
Competition is always a good thing. Competition is another key point that will help you to price your products effectively. This includes competitor brands that are local or international within your market.
Disclaimer, knowing your competitor's pricing does not automatically mean that you should price lower than them to get sales. Instead, you know have a gauge of prices that you can choose for your products — giving you an advantage to understanding what your customers expect and how you should cater to them while outdoing your competition.
For example, if your competitor is selling three bottles of hand lotion for $700, but you can sell a month's supply (exactly three bottles of lotions) for $500. This is just one of the many ways you phrase your pricing when coming up against a competitor.
One of the best methods to learn from your competition is to create a S.W.O.T. analysis (for them and you). This will allow you to find an advantage for your pricing strategy and overall brand.
4. Quality vs. Quantity
Quality and quantity are two elements that will not only affect how you price your items but justify it! You know what it takes to label, manufacture, bottle, and more. Not to mention the cost to pay yourself. These are overhead costs that are factored into your product pricing.
At the end of the day, making a profit is one of the main reasons you started this business and what's going to help you to maintain this business.
When we talk about using or factoring quality and quantity into your cost, we'll also have to consider making "breakeven." Breakeven is a formula used to determine if a product or service will be profitable by equating its total revenues with its total expenses.
This will help you to understand how many products you'll need to sell for you to make a profit. Trust me, and this can be an eye-opener that can help you to consider selling retail or wholesale or re-pricing your products altogether.
5. Be Ready to Brand at Cost
Branding and pricing aren't entirely separate when it comes to business. They influence each other and, when done properly, contributes to business success. This combination is why product categories like luxury, retail, couture, made-to-order, and more.
It's essential for your branding to match your product's price point. Once again, pricing is a signal. Who do you want to attract?
How would you feel if a brand sold 500 t-shirts and then advertising that they're a clothing brand with affordable prices?
A bit confused, right. This is a classic case of an unrelated pricing and branding strategy.
Alexander Wang is a high-end fashion brand with prices starting at $50 and up that caters to celebrities and influencer fashionistas. The brand is a glam meets minimalist, and their marketing and social media post all resonate with that message. You'll notice seasonal rather than monthly sales and discounts — highlights of famous influencers and prices to match.
The wrong brand message and pricing can affect your conversions and sales. Make sure that they both resonate with each other and avoid confusing your customers.
6. The Power of Your Pricing Strategy
How much the customer is willing to pay for the product has very little to do with cost and has very much to do with how much they value the product or service they're buying.
Funny enough, a product's pricing strategy goes beyond the number count and uses buyers' psychology, showing you how and why people buy.
For example, you can either display your price, $99, or $100? Seeing that $1 difference makes a difference.
It goes deeper; here are a few pricing tactics you can use for your pricing strategy based on psychology that has proven to influence buyers:
Tactic 1: Reduce the Left Digit By One
Reason: A one-cent difference between $3.00 and $2.99 will make a huge difference. Why is the left digit so important? Because it anchors the perceived magnitude.
Tactic 2: Display Prices in a Small Font Size
Reason: That's why customers perceive your price to be smaller if you display your price in a smaller font size
Tactic 3: Remove the Comma
Reason: Researchers found that removing commas (e.g., $1,599 vs. $1599) can make your price seem lower. When you remove the comma, you reduce the phonetic length of your price:
Tactic 4: Separate the Shipping and Handling
Reason: If you sell products online, you should usually separate shipping and handling fees. With "partitioned pricing" (i.e., separating a price into multiple components), you anchor people on the base price, rather than the total cost.
Tactic 5: Offer Payments in Installments
Reason: Suppose that you're a service for $499. By offering payment installments (e.g., five payments of $99), they'll be more likely to compare your installment price ($99) to a competitor's lump sum (e.g., $500) — a huge difference that makes your offering more appealing. People often compare reference prices subconsciously, so your installment price stands the test.
7. What Items You Should Use to Make a Profit
Sometimes it's not how you price but what you price that can attract customers and add value to your products. Here are four tips you can use to display your products and make a profit.
1. Discounts: Power of Discounts
Discounts don't lose you sales. People expect discounts, and you're guilty of it too (yes, you!). We're spoilt rotten to see that 15% discount pop-up every time we land on a new website. As a shopper, we're excited to see it, as a business owner you're wondering if it's even possible to use that method on your online store.
I'd suggest using limited promotions; this protects your profit margins and allows you to have more control over what you present or accept from purchases. These conditions could be:
Buy x number of items and get % off
Spend x amount to save %
Buy specific items/SKUs to save %
Buy and get one or more items for free or on discount
Spend and get one or more items for free or on discount
2. Bundles: Two or More Can Increase Prices
Bundle your best sellers or products. Create packages for holidays or special occasions that people can purchase as gifts or exclusively new products.
Brands like NYX have been known to make profits from cosmetic bundles, kit's and packages.