Pricing is a very sensitive topic, it is the fundamental strategy and the overall way of how to present yourself and your company. So first and foremost, you need to be upfront with your pricing strategy, and what you will be charging your client.
You need to be able to manage your client’s expectations, as a surprise price for a service or product can be overwhelming and have a long-lasting negative effect on your reputation. We recognise however, it does depend on the client and the type of work which requires to be completed or sold. Having an unstructured pricing strategy doesn’t negate the need to discuss up-front how much your services will cost with your client, it still needs to be discussed first. Again this manages your client’s expectations. At the end of the day, how much the customer is willing to pay for the product or service has very little to do with cost and has a lot more to do with how much they value the product or service they are buying.
There are multiple pricing strategies for pricing products and services. With each industry, the pricing strategy varies and what’s good for one industry is not often effective for another. There are many pricing strategies used in the world but the 7 below are more common.
Cost-plus pricing which is simply calculating your costs and adding a mark-up. Competitive pricing where the price is set based on what the competition charges. Value-based pricing is how much the customer believes what you’re selling is worth. Price skimming is setting a high price and lowering it as the market evolves. While there is also Penetration pricing where you set the price at a low price and enter a competitive market and raising the price later. Fixed pricing is where there are pre-existing templates which have a price attached to them. Lastly, there is Time cost pricing when you bill by the hour with expenses.
More often than not, Cost-plus pricing is used because it’s just plain easy. However, many others stick with copying the prices of their competitors, while not ideal, it still is a little better strategy. There are many different opinions on how to price your service or product, and each opinion varies.
Now, let’s look into the pricing on consumer behaviour to provide the insight on how effective pricing can be. Selling products and services at a similar cost, would be having an identical price point for multiple products which are similar and then pricing them with a slight difference in cost. 7 out of 9 consumers would buy a product which is cheaper when they are given a choice between 2 products which are almost identical but vary in price. Now, the point isn’t to sell your identical cookies at variable prices, it’s rather to recognise the why behind the action, when similar items have the same price, consumers are programed to defer their decision instead of taking action.
You want to sell those $500 heels, well put it right next to the $1,500 heels. Why? Its price anchoring, it is the tendency to heavily rely on the first piece of information offered when making decisions. Placing a premium product and service near standard options may help create a clear sense of value for potential customers, who will view the less expensive options as a bargain.
We have been raised to spend money until it starts to hurt. Our brain reaches a limit when the pain is greater than the gain. The way to reduce these pain points is to postpone-purchase satisfaction and retention. When you price a service or product and you re-frame the product’s value, it’s easier to evaluate how much you are getting out of a $51/month subscription than a $600/year subscription, even though they average out to around the same cost.
Packages are a great example when we talk about bundling items. As a customer it is easier to justify a single upgraded package rather than multiple singular upgrades which help condition the consumer to spend more in one transaction rather than multiple transactions. It would be a good pricing strategy to have packages to help with bundling items to be able to increase prices.
For clients who are more money wise, you would need to focus on and appeal to their well-being, their utility or pleasure to persuade them to pay the price. FREE SHIPPING! There are many times I have personally cancelled an ordered because shipping was expensive and there was another site where shipping was free selling the same or a similar item. Obviously the free shipping is only available because it is already included in the price, but it’s just our mentality to not want to pay for shipping when other people are not paying as well. As the saying goes, it’s either free or it isn’t.
When a pricing strategy is used, we need to consider the person’s experience with the product or service. If we have had a negative experience with the service or product, it is connected to a less favourable attitude towards the service or product. It is either ‘experiential’ or ‘material’ example your Levi Jeans that are prestige’ and a concert ticket.
At the end of the day the pricing strategy needs to focus on all concepts of your business and needs to suit you the best. It’s always a good idea to research your market before your price your product or service, because if you inappropriately price your product and service it could lead to negative effects on your business.