Column from Florida Trend's Business Coach
How companies get the highest possible product prices
Do you ask too much for your products or services? Too little? Do you really know?
Sometimes pricing decisions are based only on desired profit margins or as a fix for tumbling profits. Many times it’s just a reaction to a competitor cutting its prices or customers demanding better deals. No matter what, you’ll lose sales if your offering is priced too high or too low.
Pricing is one of the most important elements of marketing. Sure, you have to worry about costs such as design, production, promotion, and sales. Yet, your customer doesn’t really care about these -- that’s your problem!
The secret is in understanding human behavior. Getting the highest prices possible requires you to know your customers better than your competition does. It’s the only way to make sure you don’t leave money on the table or sales stall.
Try some of the following pricing strategies to improve your bottom line.
- Show a value that is at least ten times the cost. At what point in the buyer’s mind do they start thinking that your offering is totally worth the cost? You pricing is validated when customers feel that they are getting many more times the price you’re charging in value. If you can show at least ten times more value than what it costs your prospect, you’re in good shape. In other words, if you charge $1,000 and your prospect perceives a value to them of $10,000, then you’ve done your job. The key is to understand the goals of your prospects, the issues they face, and how they perceive value. For instance, is it obvious to your audience that they couldn’t duplicate your offering themselves without spending ten times the price? Or that you’ll save them at least $10,000 over the life of your product? Don’t be shy -- show the extraordinary value you provide and set the price using the “ten times” method.
- Bundle value inside. When there’s more stuff included with the primary product or service, people perceive more value. Of course, the extra goodies should be related to the product you’re really selling -- or at least have a great deal of utility to your target market. Value-added packaging almost always favors the seller from a profitability point of view. There’s a competitive advantage as well, as long as you can add products, services, or education that are unique and defensible by you. As an example, take advantage of partnerships you have by persuading your partners to give you something of value to include as part of a cross-promotion -- something your competition can’t match.
- Focus on your core value. Sometimes companies outsmart themselves because they try to charge customers for a product or service that completes their offering. Here’s what I mean -- let’s say a company sells a nifty online data storage system for $30 per month. In order to use the system, a software application needs to be downloaded. However, the company gets a bit greedy because they want to pump up their bottom line and asks for a $19.95 software license. This misses the perceived value mark by a mile. Instead they should say, “sign up today and we’ll include the software, a $19.95 value, for free.” Their core offering, the online data storage system is the reason people are interested in this service, not the software to run it. They make their money long term on the monthly subscription service fee and giving away the software in this case is a much better pricing strategy.
Price your offering to the total value provided. Once you start making your pricing decisions based on value, you’ll find that sales will increase. You may even be able to improve profits by raising prices.