How to Determine the Right Pricing Strategy For Your Business
brand direction & styling by us for Alice Beasley | photo by Amelia Soegijono
Did you know pricing is all perception? When people say something is “expensive” or “cheap,” it’s relative to how much they are willing to pay for it.
This is the reason why most people continue to pay for overpriced coffee, boba drinks, and cocktails while knowing that they are being charged way above what these beverages actually cost. In their mind, their emotional needs for these drinks are worth the price.
This is also why there are people with a wide range of income levels buying from the same luxury brands. Despite their different disposable income, many choose to save up for a splurge to pamper themselves from time to time. Even though we all know that we can get a bag that serves the same function as a luxury bag for less than $20, and that most luxury brands mark up their prices, people are still willing to pay a hundred times, or even a thousand times, more for a luxury bag. It’s because they think the bags fulfill their emotional desires and needs and that the bag is worth the pricey price tag.
Besides referring to your costs, it’s important to take emotional desires and perception into account when finding the right pricing for what you sell. Here are 3 steps to get you started off on the right foot, so you can avoid racing to the bottom and competing on low pricing, and use pricing to your advantage to keep getting those yeses from customers!
Step #1 Know your range
Conduct your market research to understand the price floor and ceiling of your general market. In most cases, you’d find a very wide range as you look at the entire market. This range gives you a general sense of people’s willingness to pay for what you do and your budget, which you can use to cross-check with the range you have in mind for your products or service and how you are positioning your pricing in the market.
Step #2 Hone in on your niche
After getting a sense of the general market, hone in and get focused on your niche, or target customers. Check out this post to learn why finding your niche is the secret to standing out, and get this 3-step formula to begin identifying your niche!
With your target customers and specific market in mind, answer the following questions:
A . What do they care about the most when they shop for what you offer in your industry?
Identify the specific attributes that your target customers value most. Some examples of attributes are such as speed, quality, efficiency, features, versatility, variety, personalization, etc. These attributes would vary depending on your industry and your niche.
B. What result and transformation do they receive through what you sell?
You are not just selling your products or services. You’re selling what your products or services will do for your niche and that’s what people are actually paying for. Find out their inner desires and speak directly to those things people truly want from what you sell. Need some more ideas? Check out this post and unveil this one hush-hush secret of incredibly powerful brands.
C. What would you pay for your product or service if you were them?
Knowing your answers to both A and B, now consider yourself in the shoes of your target customers and answer this last question with complete transparency and honesty. With the money you have available, how much are you willing to pay for what you sell? Narrow down your price range further from STEP #1.
Step #3 Increase the perceived value
Stop marketing and selling on the product or service level. Because the notion of “cheap” and “expensive” comes from comparing the price tag of something versus the value of that thing in people’s minds, invest in educating your audience about the value of what you sell through marketing.
To increase the perceived value of what you sell, refer back to STEP #2-B, call out your niche’s inner desires and educate them about the results and transformation that your products and services bring to them. Help people understand the value of your products or services, so they think what you sell is worth, or worth at least, the price you’re charging, which would multiply the chances of people buying from you.
TIP: Pricing is a brand strategy
The right pricing for your business isn’t just one that leads to yeses from customers. It also gives people the right signal and perception of your brand and where you are relative to everyone else in the industry. Your pricing is part of the brand experience you’re creating for people, so make sure it aligns with how you want to position your brand.
Check out this post to learn how to create your strong & unbeatable brand positioning in the market and this one to find out how to brand your small business to stand out from the herd.
Wondering if you should build a personal or a business brand? Check out this post and find out now!
Tired of competing on low pricing? Here are the 5 most effective ways to fight a price war to help you avoid falling victim to low price competition.
Want to get more sales and get those yeses from more customers? Learn these 6 eye-opening ways to make your offer so attractive that people simply can’t ignore you.
Join me at our FREE training, so you know how to grow your profitable brand people love AND a loyal customer community who keep buying from you!