Pricing can be a sticky issue, particularly for start-up businesses. The right price starts with the right pricing strategy, a flexible approach that will help define your pricing day by day and ensure you keep selling at a profit and growing your business. Here we’ve laid out some of the most common pricing strategies, and more psychological ones, to consider including knowing when to drop your price and when to raise it.
Where do you fit into the local market?
Whether you want to offer top end luxury or cheap and cheerful bargains, you probably know the rough kind of range you need to price into. But even then, the devil is in the detail and knowing how you compare to the rest of the marketplace takes research and consideration.
No price exists in isolation. You need to know precisely what your competitors’ prices are, new and old. Ideally you should know how those prices have changed over time, and what customer perceptions are of the choice on offer.
A lot of purchasing decisions, even between businesses, will be as emotional as they are rational and if customers have historically felt ripped off then that creates a very specific context for your pricing decisions. Of course, you need to compare qualitative as well as quantitative factors. If a competitor is a lot more expensive but offers features and benefits through the roof, you need to take that into account.
Do your research
A small investment can pay big dividends in terms of getting your pricing right. That investment could be a paid research firm or just an afternoon of your time on the internet. But you need to know:
When you know the market and your place in it, you can begin to develop a pricing strategy for your business.
It’s worth remembering that most customers can smell if a price is fair or not. They are price-comparing every single day and will probably know the figures better than you, and discuss them readily with friends.
Here are some general pricing strategies to consider when setting your own prices, and analysing your competitors’:
Giving perceived value
Different industries have very different customer mind-sets, but there will often be similarities in how they perceive value. Here are some of the more sophisticated psychological ways you can appeal to a customer’s nose for a deal when setting your pricing strategy. Chances are they will all feel familiar.
Sometimes it becomes necessary to adapt your prices as you go. This is no bad thing as long as you do it the right way and for the right reasons.
Reviewing your prices is good practice, you want to check what the industry is doing and possibly renegotiate with suppliers. Benchmarking your prices to competitors is a good way of looking at the effectiveness of your business as a whole. If your margins are low even with a similar or higher price than your competitors, your costs are too high.
Discounting is another common short-term price change, and though it’s extremely common, many business advisers will warn against it. The reason is, most discounting is done aggressively by well established businesses that can take the hit, or pass the hit on to an already squeezed supplier. Price wars can hurt, but they are a good way get rid of old stock and bump up sales.
Don’t be afraid to raise prices either. Your target market might not be as price sensitive as you think while good customers will appreciate your service and understand. Explain up front and make it clear that it’s their choice to keep buying from you.
A typical scenario is for inflation to creep into a small business’s margins quietly over time and erode profits. So, at the very least, make sure you raise prices with inflation.
Remember: it’s about the strategy
Changing your prices may make you uncomfortable, but it’s far better than trading at the wrong price. A good product or service deserves to be rewarded so don’t feel embarrassed about aiming high. It is business after all, and the customer will tell you when you’re getting it wrong. So remember to be flexible, the strategy is more important than any individual price.
This guide is intended as general advice only, and not intended to cover specific circumstances and needs. The information in this article is also not linked to any of the products offered by Clydesdale Bank PLC.