Starting a new business is a whirlwind of an adventure. You have to take many steps to get your business up and running, from certifications to finding clients and everything in-between. One method that helps make sure you’re dotting your I’s and crossing your T’s is the 4 P’s of Marketing: Product, Price, Place, and Promotion. One of the most challenging yet most essential steps you need to finalize to get your business off the ground is coming up with your company’s pricing strategy.
Below are helpful tips to consider when finalizing your pricing strategy for long-term success.
Determine Your Target Audience
When setting your brand’s pricing, the first and most important step is defining your target audience. Spend more time learning what matters most to your audience. Understanding how your audience makes purchasing decisions will play a critical role in determining what pricing strategy will lead them to select your products and services in a crowded marketplace.
As you develop your brand’s pricing strategy, you must consider the cost of servicing the market segment with whom you wish to do business. This is above and beyond your fixed production cost and your general overhead. Strategically defining your market is often less expensive than trying to service “everyone,” especially in the startup phase. Resulting in higher profit margins and increased customer satisfaction. If your brand’s goal is to attract high-value clients, having a clearly defined pricing strategy is imperative.
There are a few pricing strategies you can use to help make choices on what to charge. One method is cost-based pricing, which involves calculating the cost of the product or service you’re offering and adding a mark-up to determine your price. Another method is value-based pricing which bases its pricing model on the benefits to the customer instead of the actual cost of creating or developing your product or service. If you decide to choose the value-based pricing model, you will want to make sure you’re not lowering your prices for clients, which will hurt you in the long run (more on this in the next tip).
Avoid Being a Low-Cost Provider
Many small businesses and startups make the mistake of entering the market as a low-cost leader. Any time an organization promotes their product or service by mentioning their prices, they are branding themselves as a low-cost provider. Often they assume that this will give them a competitive advantage and attract more clients. Unbeknown to them, it attracts the wrong clients. Potential customers who are not motivated by price are often turned off when they see you as the low-cost leader. They assume that the products or services you are offering of poor quality or that you lack the experience to understand the actual value of your products and services.
Some startups establish their brand as a low-cost provider, and after they have developed a proven track record, they attempt to increase their prices. This approach leads to a decline in customer loyalty. Customers who elected to work with you simply based upon your low prices will likely choose to leave when your costs increase. Using a phased approach wherein you charge new or well-off customers a higher rate for the same product or service can lead to a PR nightmare and be more harmful to your brand than the low-cost approach. Commonly an organization will offer a lower price to new clients, which puts them at risk of offending their long-term and loyal clients.
Using value-adding features to set your products and services approach from the competition requires gaining a deep understanding of your client’s needs, motivating factors, and your competitors’ products and services. If your brand is attempting to distinguish itself on features and benefits, you must take the time to listen to your competitor’s current and past customers. During these learning opportunities, your primary goal should be to understand what features and benefits are of value to their customers and which features and services are less attractive to this group.
Using focus groups, surveys, and informal interviews to learn from individuals who have purchased similar products is well worth the investment. As a result, you can develop innovative additions that they would find attractive, and you can also save on production costs by eliminating features that they deem worthless. Furthermore, you can enter the market with a clear marketing message allowing you to charge premium prices for your products and services.
Sell the Solution and Not the Stuff
Consider the problem that your products and services address and use a problem-solving approach to position your brand as the solution to their problem. Again, to best understand the situation from your target audience’s perspective, you need to invest ample time to listen to their needs, wishes and attempt to understand what keeps them up at night.
In a previous blog article, Della Rucker, principal of Econogy, advised brand managers to get their products in the hands of human beings and use their feedback to help you determine the best approach to marketing your products and services. Once you have this imperial data, you can reverse engineer your solution and use your marketing message to demonstrate how your product and service solve the problem your customers are experiencing.
One tactic you can use to promote your product is to draw a clear picture of what the world would look like if your product or service did not exist and, contrarily, what the world could look like if everyone used your product or service. By defining your brand’s marketing message in a manner that speaks directly to the client’s frustration, you can use comparative language to express the value of your solution versus the cost of having the problem.
Differentiating on value-add versus low-cost can give your brand the competitive advantage, as it is more difficult for your competitors to emulate your strategy. While they are busy trying to figure how you are different, you can invest your time in building meaningful engagements with your target audience.
Looking for more information about pricing your products & services? Check out HubSpot’s blog post, the Ultimate Guide to Pricing Strategies. While you are there you can download their free pricing calculator.
At the end of the day, it’s essential to reach out to others who have been in your position before starting a company with questions. Their feedback will let you know you’re not alone on your journey and help give you the inspiration you’ll need. Looking for someone to bounce ideas off of? Book a one-on-one brand coaching session with me today to get started on making your dreams a reality!