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Crafting an Effective Pricing Strategy

 

strategy for setting prices

“Price is What You Pay. Value is What You Get.”
Warren Buffet

Many businesses struggle with pricing and find it one of the most challenging issues to correct. What is the right price? Is your price too high or too low? What seems to be your competitors’ pricing strategy? In the pricing arena, you will find that even the most minor price change can significantly affect your business.

The art of ‘the price’ is indeed brutal to conquer. So, you need smarts and information. Go too low, and your revenue falls, while going too high may drive your customers away.

Pricing is indeed a prominent factor on sales and profits.

A Strategy for Setting Prices

In a study of 1200 Global companies, consulting firm McKinsey & Co reported that if they raised their prices by 1% while the desire for their products was constant, profits would increase by 11%.

Wow, that is a real eye-opener, for sure. If you have an effective pricing strategy, you can be sure it will assist you in profitability over the long term.

The solution to your price strategy is to understand the market fundamentals of pricing and the real value you bring to your target audience. Having proper pricing will assist you to:

  • Increase revenue targets,
  • Keep up to date with pricing/competitors,
  • Retain market share,
  • Retain customer loyalty,
  • Promote brand awareness
  • Retain your reputation.

A strategic pricing program will keep you competitive at all times.

This series will explore the factors that influence your pricing strategy and then conclude with the different models for setting your prices.

As you begin to think about your pricing, start with your reflections:

  • Reflect over the past 3-4 months and ask yourself this question. Of the products you have purchased, which do you think provided you with good value?
  • Look at your favorite brands and evaluate the length of time you have been buying them and why you have been loyal to them.
  • What are the features that differentiate them concerning pricing?
  • What role does pricing play in your decision to purchase them or not?

Let’s dive into your strategy and start with this question.

Who is your Customer?

Let’s not fool around here; identifying your customer is critical to your business. That means creating a profile that defines the customer base that would be the specific target market.

As a seller, it is critical not to fall into the trap of thinking that your product appeals to everyone, and therefore you don’t have to create a customer profile.

Customer profiling is one of the essential steps in developing a pricing policy. It provides you with information you can use to tailor your brand, your marketing message, and your overall product acceptance.

Targeting also helps save money by making sure your advertising dollars reach people who fit the buyer’s description and do not miss the mark.

The big word in target marketing is FOCUS. That means boiling down the information so you can identify who would use your product and focus on reaching them first.

Through this process, you need to be as specific as you possibly can.

Designing Your Customer Avatar/Profile

Generalities such as “entrepreneurial moms” is just too large a demographic. The need here is to be as specific as possible, treating the whole target Avatar profile as if they were a single specific person.

There are two ‘graphics’ to consider: Demographics and Psychographics.

Demographics is about who your customer is and where they are, while Psychographics tend to lean towards psychological information about why they make their purchasing decisions.

If you were to break down the Demographics you would be looking to gather; you would be looking for things such as:

  • Age,
  • Geographic location,
  • Gender,
  • Income level,
  • Education level,
  • Marital status,
  • Family composition, and
  • Occupation.

Psychographics would be more specific, covering areas such as:

  • Personality,
  • Attitudes,
  • Values,
  • Hobbies,
  • Lifestyle,
  • Behavior, and
  • How they view themselves.

You also want to be looking very closely at your target’s Buying Behavior, such as:

  • Where do they buy?
  • When do they buy?
  • Their buying strategy
  • Their emotions when buying
  • Their price behavior, are they cheap or do they spend lavishly?

Where do you find all this data?

You want to gather all the information possible about your customer. Too much information is not enough.

Here are some sources where you can find some of the data to help you.

Your Current Customers

The data gathering process involves asking questions every chance you get.

Current customers will usually respond well to surveys through suitable sales follow-up methods, all social media platforms, and any other contact you may have with them.

More specifically, ask them directly why they chose your product over your competition.

Your Competition

You may be surprised that you can use social media to data-mine your competition’s customers.

Look at their customer’s online reviews, do online surveys, and ask for information directly.

Product and Service Review

Review each product and service feature, asking yourself just what type of person would appreciate and use each feature.

Consider the following questions once you get to this point and have enough data to create an individual profile.

  • Do I have enough people that will fit my criteria?
  • Have I been specific enough, or do I need to drill down further?
  • Is there really a need for my product or service?
  • Am I fully aware of the reasons that drive my Avatar to make buying decisions?
  • Is my current price point affordable to this market?
  • Am I able to reach out to these people with my Unique Value Proposition?

Customer Profile Example

Let’s consider an example of a business that sells web design tools to website owners.

Here is a poor example of a customer profile.

Ideal customer: a website owner.

Their specific use: they use the product to build and design their websites.

Business type: Small Business with no time or expertise in web design.

Here is a better example of how the profile should look:

Ideal Customer: Freelance e-commerce website owner,

Age: 30’s,

Geographic location: Medium size West Coast City,

Habits: 6 hours per week reading blogs,

Income: $50,000- $70,000 per year,

Additional Income: $40,000 coming from freelance programming.

Family: Married for three years and wants to start a family.

Emotions: Lacks confidence.

Buying behavior: Hopes our product will streamline his process, save money by cutting costs, and free him up so he can identify more strategies to increase sales and brand awareness.

I am sure that you can see the difference’s here and how much more valuable the second in-depth example could be.

Next week we will delve into another factor important to your pricing approach – strategies your competitors adopt.

"THE ACADEMY GETS IT!"

“I started my own business in 1995. The Self Employed Business Academy gets it. Clear, concise, and actionable information. You may be in business for yourself, but with the self Employed Business Academy at your fingertips, you won't be by yourself"

Ed Carey

Ed Carey, AMG, LLC

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