Pricing. It’s that enigmatic element of any business that’s sure to keep executives up at night and constantly second-guessing themselves. Fire up a Google search or read any business advice book, and you’re bound to come across a bazillion different pricing strategies, all of which are purported to be an instant shot in the arm to your profitability. Continue reading “Pricing Your Product: Part Art & Part Science”
People can be extremely picky about prices. Most American consumers are looking for the highest quality item for the lowest price. This can make things challenging for those hoping to make a profit in return for providing the product. The treasured secret to a successful business is having the right system to price products properly. With the right price, you can make all of the money you put into the business back and then nurture the company as it grows. Continue reading “How to Price a Product at a Rate That Flies Off the Shelf”
One of the daunting tasks being in retail is setting the price and setting it right. Pricing isn’t easy when you’re in the retail scenario—you set the price low and you lose out on profits—you set the price high and you lose out on customers.
It’s completely up to you to decide whether you want to sell a lower volume and charge a higher price or high volumes and lower prices. It’s for you to decide the direction which will enable you to make profits.
However, when you have a range of products to see, you can take the risk of lowering the prices of few products sometimes, as long you can keep the prices of other products marked up higher.
Let’s assume you have a product you’re ready to launch. You’ve weighed all the possible pricing strategies that are out there, and you’ve opted to go with a skimming pricing strategy where your price is set high based on the value to maximize profits, and then lowered over time to attract your the more frugal shoppers.
Great, but now what? What are your best methods for success? If you are asking yourself these same questions, you’re in luck because below you’ll find some ideas on how to succeed with your skimming pricing strategy. Continue reading “How to Succeed with Your Skimming Pricing Strategy”
What is it that makes the average shopper transition into a customer? The trouble for many store owners lies in trying to determine the best price for their products. Retailers understand they need to make a profit to stay in business, but what is that sweet spot that will keep the customers happy, and keep your numbers in the black? Here’s a quick guide to setting the right product price:
The First Part of the Equation
- Your costs of acquisition – How much are you paying to get the product into your inventory? You likely already know that retail price less wholesale price is the generally accepted formula for determining profit, but it’s only a piece of this puzzle.
- Costs to maintain inventory, promote, and distribute the product – Storage, marketing, and shipping of the product can have a serious impact on a product’s profit margin.
Finding the Sweet Spot for Pricing
After determining the baseline profit from the factors above, now it’s time to find the happy medium between maximized profits, and customers that will buy, and keeping them coming back for more.
- Start with the Manufacturer Suggested Retail Price (MSRP) – Just like it sounds, this is the price the manufacturer suggests you sell the product at.
- Look at your top competitors that are selling the same or a similar product – Although you may be unable to tell if anyone is actually buying at this price, you will at least know where your competition stands in terms of pricing.
**Insider tip: IntelligenceNode’s software will help you systematize your competitive pricing process and automatically price your goods above or below the competition.
- Consider psychology in pricing – For example, if you have a product you are considering selling for $10, sell it for $9.99 because the mind can justify a purchase more if it’s less than the larger dollar amount. Yes, it’s just a penny, but because it’s less than $10 our brains see it as more of a deal. A price ending in the number 9 also yields more demand, as was found in a study published in Quantitative Marketing and Economics.
- Don’t over price, but don’t under price either – When a product feels “too cheap,” customers consider it to be lower quality. Yet, overpricing leaves customers feeling duped. This is why keeping an eye on competitor pricing is so important. You want to be slightly cheaper, but not too much cheaper because then you’re giving the impression of cutting corners. Even if you are simply taking less profit, the perception is key. If you’re pricing higher than your competition, it should be justified with something like free shipping, or fast delivery to avoid losing the sale.
- Know your target audience – Consider who is buying your product? For example, college students are usually strapped for cash which could cause them not to buy. However, an elderly customer may be just as strapped for cash if they are saving for retirement. Who is your ideal customer or persona? Are they flush with cash? Are they looking for a great deal? What are their top priorities? What makes them need the product you’re selling? Honing in on your perfect shopper could help you determine the best price.
- Keep up with market trends – If there is a surge in demand or a sudden standstill to your sales, you should already have some insight as to why. Keeping up with market trends will help you to determine if you should be raising or lowering your prices. Your competitors are also likely watching the market, making it that much more important to stay up to date.
- Consider split testing – Split testing could be your quickest way to determine the right price for your products if you’re struggling to decide. This is especially helpful if there aren’t many competitors for the product in question. Create two landing pages with two product prices, and run ads to both. Which ever one gets the highest conversion is likely the best price.
Other factors that can be used in setting the right product price include things like:
- Wording of the sales page. For example, saying something like “a small $5 fee” vs. “a $5 fee,” triggers the brain to not think of the fee as a big deal.
- Softening the blow with payment options. Paying $9 a month feels a lot less painful than $108 today.
- Free shipping, or discounts for purchasing multiple products. When customers believe they are getting a bargain, it can change their buying habits.
- Thank you emails and loyalty discounts. Customers are often willing to pay more, and then return to a retailer that they feel genuinely cares about them.
All things considered, your perfect product price today may not be the same next month, or even next week. Your best bet is to keep an eye on market trends, your competition, and your own customer data. With a little luck, the prices you set will make your customers happy, and keep them coming back for more.
Product pricing is one of the biggest questions retailers face for a reason. The relationship between an item’s price and its quality — and perceived value to consumers — is oftentimes the deciding factor in shaping whether or not a purchase ever takes place.
In such an increasingly crowded marketplace, the concept of cash cow marketing has been called into question, leaving sellers in the eCommerce space and beyond to reevaluate how they approach their respective businesses. Fortunately, the Price Quality Matrix presents a simple way to leverage product value and address the pricing dilemma head-on.
What Is the Price Quality Matrix?
Designed by Philip Kotler, the Price Quality Matrix centers on the cross-section between the two metrics that lend the model its name. By determining the position of your products or services relative to the competition, retailers are able to use the price and quality of each item to identify where they stand in the market. Of course, this knowledge can then be incorporated directly into your decision-making process when it comes time to devise pricing strategy. Just think of it as another way to assess your relevance in today’s fast-paced and ever-changing business landscape.
How you price your products plays an integral role in how they’re perceived by consumers. So it’s important to ensure that the quality of your offer complements your price point accordingly. Based on Kotler’s nine-variable model, let’s take a closer look at the possibilities that result depending on how price and quality interact with each product or service.
- Premium (high price/high quality): When a product’s high price is matched by its quality, this creates an image of a premium item that consumers consider a worthwhile investment, such as Apple products.
- Over charging (high price/medium quality): Even if a product’s quality is sound, it can be tricky to elevate the price point beyond what the product offers. Tread carefully in this scenario.
- Rip off (high price/low quality): In case the name of this category isn’t a dead giveaway, steer clear of this one at all costs, as selling a subpar product for such a high price point is a surefire way to stir bad word of mouth when consumers get wise.
- High value (medium price/high quality): Conventional wisdom says that your price should surpass your product quality, since the implication is that your business will be able to turn a profit more easily. Yet, it may be worth it to offer a high-quality product at a slightly lower price upfront to build word of mouth.
- Average (medium price/medium quality): As its name implies, these products are the very definition of “you get what you pay for.” Generally, consumers know that the value they receive from a given product is in line with the price point. It’s always a good idea to offer a lower priced alternative of premium products to encourage engagement.
- False economy (medium price/low quality): The aforementioned danger in overpricing your products applies here as well, though to a lesser extent. You’re better off developing a better product or dropping the price to fall more closely in line with your product offering.
- Superb value (low price/high quality): The best-case scenario for consumers, a high-quality product with a low price can be tricky to pull off and could end up getting into your bottom line.
- Good value (low price/medium quality): Consumers are always on the lookout for an affordable, quality product. To foster long-term customer loyalty, it might be worth it to feature your medium-tier products at a slightly lower price point.
- Economy (low price/low quality): There’s something to be said of economy options. In your business, this may simply be a free version of a product that offers fewer features. However, it’s an easy gateway to establish more profitable customer relationships down the line and well worth considering.
The Price Quality Matrix Revolution
In recent years, product pricing has become a bigger issue than ever before, thanks to the dynamic created by increased automation and the expansion of online retailers. However, by developing a better understanding of the connection between price and quality as described by Kotler’s model, you can use the psychological aspects of product pricing to create a trust with customers that will ultimately reap long-term rewards. Simply asking yourself where each of your product offerings fits within the above categories can shape a clearer vision of where you fit within the marketplace and the possibilities for growth that lie ahead of you.
For more details about how you can optimize your pricing and foster the success and reach of your business, check out our eBook, “A Comprehensive Guide to Competitive Online Retail Pricing Strategies.”