|Is your pricing strategy right or wrong?|
How do you set prices for your products? Do you try and
determine what the market will allow, do you base it off of your cost or do you
use pricing as part of our branding and positioning strategy?
The price of stuff is all over the place. At times pricing is so illogical and often not well-reasoned or consistent with a brand's position.
Take water for example, you could purchase 50
gallons of water (from a tap) for about $1.00
or you can pay $3.99 for 12 oz. of water from Fiji. How can you avoid getting yourself
underwater when you price your product or service?
Consumers and businesses buy
for irrational reasons that often have little to do with price. I try to always
buy my gas from Exxon. I drive past
cheaper stations but I have a totally irrational connection to Exxon because my
Dad gave me my first credit card in the 1970’s from Exxon. Some agencies or B2B suppliers are successful because we like the salesperson and are swayed by the person not the offering. Consumers can sometimes behave like sheep following what others do. Features and logic don't always make the cash register ring.
Pricing has three zip codes where your brand can live.
|Zippity Doo Dah|
One territory is below
market. One is at market pricing. One
is above market pricing. If you are at market or below, you are heading
into a territory that makes brand differentiation very difficult. In fact, if your focus is on pricing in your
marketing efforts, you are fighting against differentiation and brand building.
Everyone can lower the price.
Value or bargain based pricing that is less than the market
tends to give you a cheap experience. Cheap quality, cheap service and nothing
extra as the brand becomes a commodity. It is very difficult to make money in this
segment unless you have excess capacity that is idle and underutilized or you
have some incredible added leverage that is unique in your marketplace.
Dollar Store has a different approach to purchasing as they buy closeout goods.
These products are bought way below market value so they can resell them at way below
market pricing. But most brands don’t
have this opportunity. If you want to build secondary meaning for your brand you must distance yourself from commodity pricing. Undercutting the competition is often the wrong place to be. Everybody
can lower price so it never offers a competitive advantage. This is true for
the butcher, the baker and yes even that woman who makes candles.
Market pricing allows you to swim with the herd…or fishes to
stick with the liquid metaphor. In the land of market pricing, you are swimming
with all your competitors crowded together in the same part of the pond and you
have to earn business based on something besides price.
|Swimming with the fishes|
But will you have enough gross margin to do this? Can you
differentiate yourself in a meaningful way without the margin to support your
added features or benefits? This too is a very difficult place to be and with
little or no pricing power, you may be up a creek. Few brands are built sitting
on this fence. You aren’t cheap enough and you don’t offer enough added
benefits. Dull. Boring. Dangerous.
Going for the Gold
Above market pricing is where the gold is. But it comes with
an important challenge that requires you to prove that you offer something
worthy of that extra price. If I am a $4.00 muffin in a world of $3.00 muffins,
what possible reason (real or emotional) can cause a consumer to dig into their
pocket for that extra money? What if $1.00 of every muffin went to feed
children in an orphanage? You might say that buying that muffin makes you feel
better about indulging or you might say, “if I want to donate to an orphanage,
I’ll do that on my own.” But at least you are offering consumers a compelling
reason to pay more. The market will tell you if it is a good idea.
I expect a product or service that is more expensive to
offer more benefit or value to me. If I buy a more expensive item and don’t get
added benefits, I’m not paying you more. When BMW entered the U.S. market, they
thought pricing would drive success so they entered slightly below market pricing for
similar features. They failed at their inaugural product launch.
they raised their price above the market, suddenly consumers said, “These cars must be
special if they charge a much higher price.” This is a great lesson for brand
managers struggling with tight margins. BMW had a better product worthy of the higher price. Can you justify the higher price for your product or service? Do you offer something extra that drives home your brand’s value proposition?
Whether you are an accountant, photographer or service provider
who charges 20% above the market rates, how do you justify your difference in
Do you offer something of value that customers can’t get elsewhere? Do
they understand the difference? Is it truly special enough to be worth the
premium? Maybe, you want to limit the number of clients and want to only work
with those who can afford to pay at the high end of the scale. If you can
maintain a higher price, you don’t need as many clients and you earn more with
fewer hours of work. But what is the benefit to the customer or client to pay
Ask yourself - how you can justify charging a higher price
and what added features, services or benefits do you need to separate yourself
from the crowd? Is an electrician who
charges $150/hour better than one who charges $100/hour? Why would I use the
more expensive one if the cheaper craftsman will do? What if the electrician
for his higher fee also offers a quick 15 point audit of areas where fires
occur and you get that as part of the visit? I often irrationally justify getting my car fixed at a dealer where it is more expensive because they wash my car for free. Ridiculous, I know but that is how illogical we consumers are often in our behavior.
I often hear people say that the market won’t allow you to
raise prices. Do you offer some added value, real or perceived, that is truly different to your target audience? Do you effectively communicate this value?
Being different can be worth
a higher price if you can package it in a meaningful way to your customer or clients. Try experimenting with raising prices tied to a new offer or benefit that becomes part of your standard approach.
Maybe your brand is worth more but your price is telling the wrong story.
Labels: How to establish prices, Marketing Moments, Pricing