Pricing your product or service is the most effective leverage you have to increase revenue in your business. In this article, we will break down how to make an informed decision on the price of your offering in five steps.
1 | Know Your Positioning
Positioning your brand involves knowing how you plan to engage with your target audience. We can break positioning down into three elements that, when implemented, can be effective foundations for all of your marketing and branding efforts— including pricing. The three elements are benefit, concept, and delivery. First, understand what customer need you are serving or what the benefit of your offering is. Next, generate a positioning concept by deciding what place your brand occupies in the minds of your audience and how your offer distinguishes itself from its competition. To develop this concept, you must understand your competitive landscape and know the demand. A statement template that may help craft your position is: "For [target audience], the [product/service] [most important claim] because [mission]."
“For business owners who desire their brand to be perceived as sophisticated, Atelier Oluwatosin provides bespoke design using timeless aesthetics informed by rigourous research and strategic thinking. Our desire is to add beauty to the world, and we know our clients have a stunning story waiting to be told through compelling visuals.”
Now that this strategy is in place, you can begin the delivery phase. Implement packaging that communicates your message well. This may be a website that illustrates your services beautifully and concisely or a box that houses your products and talks about your goals. Promote the critical claims in a way that will resonate with your target audience. Place your offering strategically by thinking of where it will do well, physically in-store or virtually. The process outlined in this section takes time and intentionality but is a necessary foundation for determining price. Well done positioning allows users to appreciate how your offering has a distinct benefit to them.
2 | Know Your Cost
Needless to say, if your cost of production is higher than your price, your profit will be in the negatives— which is deeply undesirable. To avoid this, you must fully understand the cost of running your business ad how this changes with volume as you scale. People will commonly neglect to consider less-obvious fees and expenses, so consider the little things like the subscriptions you have, the printer ink you use, and similar expenses to these. Based on your costs, many use Cost-Plus Pricing by adding a fixed amount markup to the fee required to keep the lights on. This model is typically viewed as ethical and is simple. However, it ignores the role of competitors and customers, may yield suboptimal profit, and can go very wrong if you miscalculate or neglect some costs. A common alternative is Competition-Based Pricing. This method benchmarks against competitor rates, which is quite fair. The problem is that it again ignores the role of customers. It may be misleading if the competitor's business model is different, is ineffective if the product is so new that there is no close comparison, and may trigger a competitive response where you end up racing to the bottom. I do not recommend taking either of these methods at face value. Instead, as you continue through this article, we will discuss a more nuanced way to hone in on an optimal price point.
3 | Know Your Competition
To inform your practices, monitor the way your competitors do business. Look at...
...the products or services they provide and how they market them to customers
...the prices they charge
...how they distribute and deliver
...their brand values
...how many people they employ
...the type of people that their team consists of
...their annual report if they're a public company
...their presence online (social media, website, etc.) and offline (publications, traditional media, etc.)
4 | Know Your Audience's Willingness to Pay
Since you have determined your target audience already, you can start to figure out how much they are happy to pay for your offering. Are you working with business-to-business or business-to-customer positioning? The answer will likely play a prominent role in how much your customer has to spend. As the price goes up, how much does demand go down? The more demand fluctuates based on your pricing, the more elastic your audience is. You will notice lower price sensitivity when there are few substitutes for your offering, so having a unique product or service is vital. Additionally, when expenditure is small relative to audience income, the customers are less likely to be swayed by minor tweaks in price.
5 | Leverage Psychology
Psychological pricing is the craft of making offers more appealing to shoppers, influencing purchase decisions. Setting prices for products and services should always be a value-based exercise to ensure alignment with market needs; however, applying psychological pricing strategies help drive incremental benefit, helping you close the sale. Once you have implemented the first four tactics in this article, leveraging psychology can give you a bit of an extra edge in the market. Psychological pricing strategies are numerous and can become time-consuming. We have taken a lean approach to explaining these methods in the article "The Psychology of Pricing."
Overall, to boost sales, deliver unique value through your offering and demonstrate it with your messaging. It is also essential to deliver on your promises because long-term customers are deeply valuable— and it's the right thing to do. But before you can work your magic and execute your offering, customers have to perceive the value you provide to be willing to pay. At Atelier Oluwatosin, we specialize in delivery. Our team of strategists and designers will work with you on honing your brand's messaging and goals and then imbue this into your visuals through strategic design to help you get there. Reach out to us to get started on creating something delightful together!