THE
PRICING STRATEGY
Choose
the best price to Sell!
The
best price is that price
that maximizes your profits
while building a lifetime
customer through value
satisfaction.
On the Internet,
time waits for no company.
Your customer has access
to tons of information
through the Web. Your
competitor is a mere mouse
click away. You have to
chose the best pricing
strategy... the first
time.
In the digital
market scene, there are
very few second chances.
Chosing the best pricing
strategy is risky. What
best price is too high?
What best price is too
low? Will a certain best
price work three months
from now? Do you know?
Do you know for sure?
Your pricing
strategy is the single
most important marketing
decision you'll ever make.
You have to know which
is the best price that
you should charge so that
you can promote it effectively
and place it into the
hands of your customer.
It's the marketing guide
to success!
Ken Evoy
from SiteSell priced his
first e-book, Make Your
Site Sell! at the ridiculously
low selling price of US$17
to penetrate a competitive
marketplace. They wanted
to overwhelm their customer
with high-quality information
with the best price that
anyone with *any* interest
at all in selling on the
Net could not reasonably
refuse. The result? Huge
sales, and delighted readers!
Did they
know the best price before
starting out? No way!
Did they know what effect
$5 more or less would
have on the bottom line?
Nope. Did they like that
lack of confidence? Strike
three.
Take a minute
or a few more... go back
to the computer and do
a search on the Net for
the keywords "pricing"
or "pricing software".
I'll wait right here....
:-) ... No surprise that
you're back so soon! There's
not much out there to
help anyone, small or
large business owner,
to chose the best pricing
strategy perfectly.
If you are
selling a commodity, you
already know that your
profit margins have to
be razor-thin. You are
forced to compete on the
best price. It's sometimes
the only thing that sets
you apart from the field.
Your business operation
has to be seamless. Gaps
are too costly.
If you have
a proprietary product,
its uniqueness and benefits
have to be recognized
as such by the market.
You have to know if your
product has enough original
features to warrant a
higher best price than
the cookie-cutters around
it.
What are
the usual approaches for
a pricing strategy?
The traditional "bottom
up" salad bowl approach...
direct and overhead
costs tossed together
with market pressures
before being "dressed"
by the best price
A chat with your salespeople
A look at the competition's
markup
I think
we agree that a pricing
strategy is critical to
our businesses. It's the
only part of our operating
equation that brings money
into the company and into
our individual pockets.
It's the P that "extracts
the value" out of the
perceived value that you
create through the product
itself, and through your
promotion of it. Because
of that, the best price
for a product or service
has to be a top priority.
A good pricing
strategy maximizes profits...
and income is what it's
all about at the end of
a business day.
Luckily
for you, but definitely
not for your competition,
you're on your way to
success. After reading
this web page, you will
know how to determine
your best price. You will
know how to *find* your
Perfect best price.
THE
4 P OF MARKETING
First of
all examine your business
using the 4 P of marketing
magnifying glass.
Look at your Product.
What do you sell? What
does your customer buy?
What are its major benefits?
How important and unique
are they?
Look at your Promotion.
How do you promote your
product or service?
Look at your Place.
How do you ship from place
A to place B?
Look at your chosen
Pricing Strategy.
How do you decide which
is the best price to charge?
How did you decide on
your "macro" pricing strategy
(ex., penetration-pricing
or high-selling pricing
strategy) and how did
you choose the exact number?
Write down
your answers.
You need
a strategy for every part
of your business operation
to guarantee success --
the pieces of the e-commerce
puzzle have to fit together.
You need to be able to
set the best price of
your product or service
with clarity. And you
want to see the results
of that decision *increase*
the income side of your
ledger.
PRICING
MODELS
THE BEST PRICE TO PENETRATE:
Your objective here is
to penetrate the market
fast and deep. In other
words, sell as many units
of the your product as
possible. So, you set
your best price low.
Use this
pricing strategy to establish
a powerful position in
the market quickly. Why?
The basic goal is to acquire
as many customers as quickly
as possible. In other
words, you are "buying
market share" to establish
dominance.
You may
also be sensing that more
competition is on the
way. Market dominance
is particularly relevant
when you consider that
shopping (and buying!)
on the Internet is about
to explode over the next
two years... all over
the world, not just in
your neck of the woods.
You want
to have a well-established
online presence before
the throngs of new customers
are grabbed by other businesses.
The best
price to penetrate was
the model for Make Your
Site Sell. (you can download
the FREE e-book from HERE)
SKIMMING
THE CREAM:
This is the opposite pricing
strategy to penetration.
Here, the best price is
deliberately set high,
in order to reap large
profit margins. This is
usually at the cost of
losing a large number
of customers.
You gain
income from those high
profit margins, in exchange
for having a smaller and
smaller percentage of
the market buying your
product. This model works
well if you have a proprietary
product.
Some customers
will pay more for uniqueness,
especially if good value
is perceived as part of
the equation.
Typically,
two scenarios work with
high-pricing strategy...
When you first launch
a product and want to
recoup all the R&D quickly.
Good examples are consumer
electronics
"Prestige pricing" --
Mercedes-Benz, Tiffany's.
Sometimes an example
is worth 1,000 words.
:-)
"Skimming"
carries some important
risks...
Big profit margins attract
competitors who want
a piece of the same
pie. The only difference
though... they are willing
to shave dollar signs
off to get the eye of
that Web customer with
the open wallet.
The second "speed bump"
has to do with public
relations. Your business
will not survive if
customers feel that
they have been "taken
for a ride"
THE BEST PRICE TO KILL:
Here, profit is definitely
not the objective. No
competition is the goal,
at whatever cost it takes.
It's *not* for the faint
of heart. In many cases,
it is not even legal.
OK. Three
distinct business/pricing
strategies. Which one
matches yours? For small-to-mid-sized
businesses, your choice
is usually between a penetration
pricing strategy and and
high- pricing strategy.
Don't make the mistake
of doing a "little of
each" -- you'll end up
in a fatal valley between
the two.
Ask yourself
these four questions...
THE
PSYCHOLOGY OF PRICING
Let's consider
the power of the following
selling techniques...
The arranged smell of
fresh-baked bread in a
house to ignite childhood
memories of food or family
in the prospective home-buyer.
Fresh flowers/produce
near the grocery store's
entrance to encourage
impulse buying -- something
that's not "on the list".
Big sale signs at the
back of the boutique to
force the customer to
walk by all this season's
clothing styles.
The offer of free money
or big prizes on the Web
site in order to get the
visitor's click and cookie.
All four
pricing strategies above
involve psychology. It's
a reality in the business
world today. You've got
to be able to get inside
your customer's head.
And not leave one empty
space for your competitor!
It's a race for "share
of mind."
Pricing
is no exception. Reflect
on the psychology in our
guiding e-commerce statement...
Your
best price is that price
that maximizes your profits
while building a lifetime
customer through value
satisfaction
How do
you define "value satisfaction"?
By putting yourself into
your customers' shoes
-- simple but often ignored
advice. Sometimes a vendor
thinks that s/he knows
what's best for the customer.
Let's call it the "mothering-smothering
effect."
If you reverse
your viewpoint by coming
at it from your customer's
angle, then you start
to look at your product
differently. (That's the
funny thing about psychology,
it works on both sides
of the business fence.)
Chose the
best price to attract
those first-time customers
and let the value of your
product "keep" them with
you for a lifetime.
So where
do you start? That's as
easy as counting...
ONE) The most common
psychological technique
is to use a best price
that ends in any number
but 0 or 1. We all know
how much better 99 cents
sounds than $1.00 --
and $997 in comparison
to $1000. How W-I-D-E
that narrow gap is to
our buying ear. The
customer feels like
the saving is MUCH more
than 3 dollars... And
s/he credits that "good
feeling" to you, the
vendor. This effect
happens even more so
with the next method.
TWO) "Value-bundling"
gives the customer the
great feeling of getting
something for nothing.
Here products that have
a logical association
with one another are
grouped together and
one best price is set
for the combination.
Value-bundling is a
powerful method if the
best price of your bundle
equals the best price
of the most expensive
component. Yup, you
know,the refrain...
"I would've paid that
much just for the...
"
THREE) 15%, 25%, 40%...
how much louder that
best price tag seems
to scream as the percentage
grows. You bet, it catches
the ear and eye of the
customer.
Use discounting
to...
Build existing customer
loyalty. This is so
easy on the Net. You
can reach previous customers
with a quick e-mail
and offer them the best
price for your new product.
To emphasize the point,
set up a special discount
url for this select
group (which, of course,
should include your
deserving affiliates.)
Show your appreciation
concretely.
Encourage or reward
bulk buying. Go beyond
the obvious reduced
"per unit shipping charge"...
offer "three for $20"
(or better, $19.95)
for that $7 bottle of
wine. Sure, the margin
is a bit less... but
your gross is much better.
Your customer saves
on shipping, product
cost, and gets that
Rounder $20 psychological
boost.
Compete with your competitors
as in the case of seasonal
deals or for special
markets like seniors
and students. Who can
turn down a good deal?
Not me (at least that's
what my wife says!).
Discounting can be a
strong tool. But it's
not without its own
Achilles' heel... Define
your goal clearly, before
you discount. Otherwise,
you're just giving money
away. Who can afford
that? --
FOUR) The third pricing
strategy uses the psychology
of perception. You know
that truism... Quality
is in the eye of the beholder.
And where
does "the eye" land on
the Net? That's right.
On your Web site.
If your
site makes a great sales
effort, you will be able
to build a higher perceived
value. And that will support
a higher best price for
your product. It's *worth*
it to the customer. This
is IMPORTANT -- if you
sell via the Web, one
of your site's most important
functions is to build
perceived value.
Whatever
that value is, when it
comes to selling on the
Net... Never chose your
best price beyond the
value that your Web site
creates and that your
product supports. Not
if you want to build a
successful, growing, long-term
business, that is.
FIVE) The final pricing
strategy examines the
best price-sensitivity.
I call it "rubber band"
psychology. Customer perception
comes into play again,
as well as competition
on the market.
If demand
for your product drops
when you increase your
best price by only 1%,
you have a product that
is very price-sensitive
or price-elastic.
If on the
other hand, doubling your
best price only causes
a slight drop, you have
a price-inelastic product
-- that means that it
almost doesn't matter
what best price you charge
because people will still
buy it... within limits,
of course.
"Make
Your Price Sell's"
FREE e-book can let
you finds those limits,
plus the perceived value
of your product, you will
be able to use a line
graph to see how your
product reacts to changes
in your best price.
OK. That's
it for the psychology
of pricing strategy. What's
the key point? No matter
what approach you use,
it has to "ring true"
to the customer. She will
only be attracted to your
best price and product,
if it's *worth* it.
PROFIT!
You have
to make a profit or you
won't survive. The right
best pricing strategy
is critical to your commercial
future. It *is* your most
important marketing decision.
Why? because
misjudging your pricing
strategy points in this
digital era costs dramatically
more than it did in the
past. Internet markets
mature rapidly.
You have
to be prepared to adjust
your pricing strategy
frequently or upgrade
your product/service to
maintain your best price.
The best price is never
static.
So, what
do you do? Get the e-commerce
equation right... every
time!
Great
Product + Perfect best
price + Satisfied Customer...
= *SUCCESS*
A lifetime
of success, that is. A
buyer decides if your
best price is acceptable
by determining the benefits
of the product and by
considering the competition.
The seller prices to
maximize profit, while
considering the bigger
picture business model
(i.e., high selling price/low
volume or low selling
price/high volume).
Your best
price must pay for the
cost of production, marketing
and overhead costs, and
still make a profit.
Let's say
that Product X costs you
$20 to make, market, sell,
and distribute. But let's
say that your customer
is only willing to exchange
$10 for it. This equation
is definitely "off the
rails" and will stay there,
permanently, unless some
major modifications are
made.
"Hard Knocks"
life lesson learned by
this experience? The most
important determinant
of the best price choosing
is *always* what the product
is worth to the customer.
This is
the beauty of a good survey:
You learn the exact best
price that people are
prepared to pay for your
product so that you can
assess whether your product
or service is worth pursuing
or not -- saving time
and money.
Before your
prospective customer can
tell you what your product
is worth, she must understand
what it will do for her.
So you must be able to
answer the question...
What's in it for me?"
That's where an effective
Web site is absolutely
necessary. A great site
educates the customer
about your product's benefits
and features. It builds
perceived value.
For example,
if you are going for a
high selling price/perceived
value model for your product,the
Web site must reek of
money... no corners shaved.
Every high-end detail
must be polished to a
shine.
Figure out
your target group. Who
is most likely to see
the benefits of your product
immediately? Does the
copy on your Web site
reflect that awareness?
And, you
can't afford not to keep
"tweaking" your site periodically.
Market conditions demand
surveillance. Perhaps
you need to upgrade your
product because your competitor
has come up with an interesting
angle. Or you need to
counterattack a mature
market.
What if
you discover an untapped
segment of the population?
Your site has to be able
to capture their attention
and make that visit-to-sale
conversion. Actually,
your site has to go beyond
that. It not only has
to get the sale, it has
to build perceived value
in your product. If the
customer "gets it" (in
his or her head), both
the perceived value and
the Conversion Rate will
be high. Follow the principles
of
Make Your Site Sell's
FREE e-book to double
perceived value *and*
your Conversion Rate...
DON'T
GUESS. BE ACCURATE!
A theoretical
best price for your product
may look reasonable and
saleable on that fancy
spreadsheet or after a
discussion with your hired
pricing consultant. But
it might be totally off-base
to your customers' "personal"
best prices. And if it
doesn't jive then you
might as well leave the
dance hall.
You have
got to know confidently
at which best price point
your customers are thinking...
"Yes, this is worth it."
Or conversely, at which
point *best price-resistance*
kicks in. That's the best
price where your customer
starts to think... "I
don't need that as much
as I thought I did."
This brings
us to a critical concept
that we call the TEETER
POINT (tm). It's that
best price at which the
consumer just can't make
up his mind. Basically,
it's a 50-50 proposition
-- the credit card could
stay out or it could be
put away.
The *ideal
customer profile* would
highlight...
Their assessment of
your product in terms
of importance and impact
Their buying habits
Their average monthly
expenditure on similar
products
Their ability to find
your competitors
Their point-of-resistance
to a sale
Write down
the answers to the first
four questions...
What method do you use
to get to know your customer?
How do you know what they
think about your product,
best price, and your competitors?...
E-mail? Street canvassing?
Telemarketing?
If you were building a
customer profile, would
you look for the same
things that I outlined?
What would you add to
be in sync with your particular
product and business?
Does your site "fit" with
your customer profile?
For example, a site for
"pioneers" (daring consumers
ready to try revolutionary
new products) will differ
substantially from that
aimed at a "mature market."
How would you rate your
Web site for "Builds Perceived
Value"? How often do you
revisit your site for
adjustments?
Get a picture of Henry
Ford and put it on your
desk with a yellow Post-it
note...
"Listen
to the customer... s/he
has all the answers."
:-)
PRICING
STRATEGY
Of the marketing
4 Ps (Product, Place,
Promotion, selling Price),
it's the only "P" that
brings income INTO your
business -- the other
3 Ps all COST you money.
Pricing
strategy extracts the
value that the other 3
Ps build in your customer's
mind. But exactly how
high is that perceived
value?
Pricing
strategy sounds so easy
in theory, but ever so
difficult to do in the
real world. Actually,
up to now, it's been impossible
for small-to-mid-sized
businesses to do it in
the same manner as the
Fortune 500.
All the
way through this web page,
our guiding e-commerce
statement has been...
The
perfect bst price is that
price that maximizes your
profits while building
a lifetime customer through
value satisfaction.
And the
perfect pricing strategy
does more than just maximize
profits -- it LEVERAGES
them. Here's how... Let's
say that you have a net
profit margin of 10% (i.e.,
after ALL expenses, including
overhead, etc.). If you
could increase your best
price by 10% *without
losing a single sale*,
you would obviously increase
gross income by 10%. But
that 10% increase in selling
price increases your *net
profits* by 100%! And
you'd still keep a happy
customer who will return
again and again. Talk
about a win-win situation!
But there are two big
IFs in there... ...
IF you don't lose a single
sale and ...
IF your customer is still
thrilled with your product.
How can
we be sure of those IFs?
Where do we find your
Perfect best price?
Simple.
Start where *all* business
begins... ... with the
customer.
A perfect
pricing strategy does
not always mean an increase
in your best price. Let's
say that you decrease
the best price of your
product from $89 to $79.
If that doubles sales,
wouldn't that more than
make up for slightly lower
margins? How do you know
IF that best price decrease
would increase sales?
Again... start with your
customer.
No "guess",
no "ball park", no "gut
feel" terminology is allowed.
The most important determinant
of the best price is *always*
what the product is worth
to the customer. You have
to know that perceived
value level *exactly*.
The reflection
exercise helps you get
inside your customer's
head. Were you able to
answer them all?
Quick review...
What method do you use
to get to know your customer?
What is your customer
profile? Does your site
fit with it?
Do customers perceive
your product as valuable
and useful to them? How
does your Web site "show"
this? How often do your
readjust?
Where is your market?
Where is it at in its
development?
Make a reminder
to yourself to come back
to this assignment every
once in awhile. Keep on
your toes so that a competitor
doesn't bump into your
heels. :-)
Read your
answers again. Now, how
do you know if your insights
are correct? What's the
margin of error?
Dr. Carol
Ann Dorn, a McGill University
marketing/consumer behavior
specialist who worked
to develop MYPS!, pinpointed
six important questions
that crystallize your
understanding of the customer.
We divided the six pivotal
questions into three categories...
Net Buying Habits -- how
often your prospect buys
this type of product,
and how much she usually
spends. Obviously, you'd
rather have a customer
who buys in your product
category, frequently and
for big bucks!
Product Impact -- how
important and how unique
the product is to your
respondent. Pretty clear
here -- give me potential
customers who rank my
product tops in importance
and uniqueness!
The best price Point --
what s/he considers a
fair best price for the
product, and where the
customer's Teeter Point
is (that best price at
which the consumer is
full of indecision.)
See how
these questions build
a comprehensive customer
profile? Knowing your
customer means knowing
the right best price to
charge for your product.
The Perfect best price
fits the customer's *AND*
your needs (as the seller).
Now, how
do you get the answers
to find the Perfect best
price?
Expensive pricing strategy
consultants are willing
to do the job, if you
have deep pockets.
You could ask customers
directly. But that takes
staff time and creates
logistical headaches for
collecting and analyzing
the data. Think about
the last time a marketer
phoned your place at dinner
time -- with "just a few
questions" for you. Reception
level... 0.
Make Your Price Sell!
makes finding the Perfect
selling price "doable"
and uncomplicated, because
it's an exact, super-fast,
cost-efficient and truly
scientific way to determine
the Perfect best price.
It not only gives the
answers to those pivotal
six questions... it interprets
the results in *illuminating*
bar charts and graphs.
Develop a strategy to
increase customer impact...
Make a better product.
Make a better Web (Make
Your Site Sell's FREE
e-book can teach you
how to do it)
Aim for a different target
market.
Give your product away
as a traffic-builder.
You must do
something. If you don't
make an impact, how are
you ever going to sell
anything? selling price
doesn't even factor in
here.
On the
other hand, what if your
sales are great and your
traffic stats are high?
Are you completely confident
that you are maximizing
your profits? No money
being left on the table?
You need
to identify the Perfect
best price. At every single
point, you see how many
units of your products
you will sell. You just
have to match a peak on
the graph to your business
model (i.e., have you
got a pricing strategy
to penetrate the market
or are you skimming the
cream?). You want high
volume or high profit,
without falling into the
deadly No Man's Land.
Pricing
strategy. I can only give
you a small overview of
its role in the big "marketing"
picture. It is definitely
one Marketing "P" that
you ignore at your (sometimes
fatal) peril. The wonderful
news is that if you do
make pricing strategy
your priority, *you* will
reap the benefits...
MAXIMUM Profit.
SATISFIED Customers.
LIFETIME SUPPORTERS of
Your Business.
Now, that's an e-commerce
puzzle with all the pieces
together!
