Devising a pricing strategy

There is no denying that pricing plays a big role in how successful a business becomes both in the short and long term. However, devising the correct pricing strategy for your product or service can be tricky as you need to factor in so many different aspects. For this reason, many business owners initially struggle with setting a price that they are confident will be attractive to their customers but will also provide a suitable return.

The main focus of today’s blog is to delve into some of the elements you should consider when devising a pricing strategy within your business and why you should generally avoid the temptation of setting a low price.

Start with your cost
When you own a business, you are selling a product or service to your customers that helps solve a problem. Now, that product or service has cost you money, time and resources to create or buy. Therefore, it is important that you recognise what your initial direct cost is to provide that product or service.

While this seems rather obvious, it is important to also factor in some of the indirect costs associated with creating or buying a product or service to sell. For example, if you are selling a physical product that you have sourced from your supplier, it is crucial that you factor in the transportation cost to have the product delivered to your premises and factor this into your overall cost.

Once you have a clear indication of your cost, both direct and indirect, you will be better placed to devise a pricing strategy that ensures you are making a profit on each sale.

Analyse the market place
Very few products or services have no competition in the market place. Therefore, you will most likely be competing with other businesses who are also selling similar solutions to your ideal customers. As a result, it is important that you start to understand the price points of your competitors. Some of the questions you should be looking to address include, who is the most expensive in the market place? What product/service features do they have that justify that price? What is the average selling price in the market? Who is the cheapest in my industry?

Your research will help you understand the top end of the market as well as the bottom end when it comes to pricing. This information is invaluable as it will help you understand the price range that your potential customers are currently purchasing within.

Position your business
Pricing plays a big part in how your business is perceived by your clients as well as the wider world. A good example of this is Apple who adds a premium to their products above and beyond its competitors. This creates an impression of a superior product and attaches a certain status symbol and customer experience to Apple products.

Therefore it is important that you select a pricing model for each product or service that helps position your business in the correct way. Some of the things you should consider include, how do I want customers to perceive my brand? Am I aiming for the top end of clients or the more price-conscious consumer?

Once you understand how you want to position your business, you will have a better idea of the type of pricing you should adopt within your service offerings.

Competing on price
One of the biggest mistakes we see business owners make is trying to compete solely on price and therefore going to market with a really low selling price. Sure, there are scenarios where setting a low price to grab the attention of clients or for a limited time frame/offer, it can prove useful. However, as a long term strategy, we always suggest adding a premium to your selling price as it makes a psychological difference to your clients.

There is no avoiding the fact that there will always be competitors in the market place who will be cheaper than you. Often, it will be an inferior product or service, but it will still be cheaper and this will attract price-sensitive customers. Therefore, it is better to position your business in the centre of the market, not too expensive but also not too cheap, to appeal to most of your audience. This will then allow you to focus your message on the benefits of your product or service rather than keeping the focus solely on the price.

Adding a premium
Aiming to cater for the top end of your market can prove to be lucrative but you need to have a product or service that justifies the premium price. Operating at this level will allow you to enjoy higher profit margins as well as secure clients who are not price sensitive but more focused on receiving value from their investment. However, it is important to exceed your client’s expectations when you charge a premium so every part of your product or service needs to demonstrate quality and make your proposition value for money.

Closing thoughts
Devising a pricing strategy that works for your business requires research and evaluation, both internally and externally, to set a price that positions your business correctly. Here at iOB Business, we always provide our Partners with guidance and recommended selling prices for each solution they offer to their clients.

However, we are mindful that different locations have different market forces and competitive environments, that’s why our Partners are free to devise their own prices.

To find out how we can help you launch a successful Digital Agency and set a selling price that works for you, contact our team today.

Until next time, take care.