Pricing strategy is rightfully one of the most heavily debated aspects of any business. No matter what your product is or where you lie within your industry, your price point will inescapably be among the biggest questions you have to consider.
Yet, despite the mountains of information out there on the subject — or perhaps, because of it — many businesses continue to fall for the same old strategic pricing mistakes in their search for that mythical sweet spot that will easily bolster their profits. Let’s delve into some of the most common pricing pitfalls that your business might just be susceptible to.
- Setting prices too low: We know. Conventional wisdom is that the lowest prices will yield the greatest sales, but this often couldn’t be further from the truth. More often than not, companies wind up undervaluing their products, selling them at a fraction of their ideal price points. Sure, revenue may skyrocket initially, but you won’t be able to sustain that level for very long without this approach wreaking havoc on your bottom line. Besides, pricing is one of your greatest tools for shaping your audience’s perception of your product. Going too low can make it unattractive to quality-conscious consumers, implying that it is weaker than its more premium-priced competition.
- Basing prices solely on cost: Of course, you always want your pricing to take into account cost. After all, this is the only way in which you can ensure that you have a reliable profit margin in place for each of your products. However, you need to take a larger view of your product’s place in the marketplace. Decide beforehand what role your product will play in your business strategy. It’s never a bad idea to consider multiple variations on key product offerings, each with a part to play in shaping your plans for the future.
- Keeping prices the same across the board: In some circles, it’s known as the most common pricing mistake in the retail world. Having a single set price for your product seems like a good idea, but in addition to the benefits mentioned above regarding having a variety of options, you can actually use these multiple price points to market directly to consumers, allowing them to play off of each other in a way that can drive sales on all sides. Moreover, there’s the choice to exercise the growing trend of dynamic pricing, in which prices are able to shift based on a variety of factors directly tied to customer behavior.
- Don’t over-complicate pricing: Getting consumers to overcome their hesitation and settle on a purchase decision is difficult enough as it is without making thing even more confusing. As such, be sure that your price points are as simple as possible. This mindset should apply not only to your offers but also to the way you present each price itself. You wouldn’t think that $150.00 and $150 would make much difference on sales, but research has shown that even these details can directly alter your results. Keep it simple.
- Failure to segment your target audience: If you’re offering multiple products — or even different variations on the same basic product — your business is bound to attract a broad spectrum of customers, each group is drawn to a different product for vastly different reasons. So it stands to reason that you shouldn’t be treating your entire customer base like it’s one homogeneous blob of consumers. This is no way to provide the personalized experience that today’s customers crave. Take this into account when setting prices and recognize the natural segmentation that will find its way into your target audience when you’re designing your marketing and sales strategies.
Proceed with Caution
While the pricing missteps outlined above might make you even more wary of taking an experimental stance with your pricing, remember that taking risks is often an effective, highly successful practice. Without mixing it up and trying new ways of reaching your audience, your business is bound to stagnate.
There may be many noted “best practices” when it comes to how you should tackle pricing, but don’t ever be afraid to explore new strategies. You never know what may connect with customers and take your business soaring to new heights. Simply tread carefully, test your ideas before implementation and be ready to course-correct if results prove to be disappointing. The details, as always, are up to you.