Have you ever wondered if you are charging too little causing your business to suffer? Or have you ever wondered if you are charging too much causing customers to turn away? Do you want more cash flow in your business and more time dedicated to your creative work? This article will explain why pricing matters, how to price, and how to increase and convey value to your customers.
Why does pricing matter?
The pricing of products and services can reveal a lot of information about your business. Price latently communicates to your potential customers the quality and quantity of your business’s resources as well as its confidence in the production process. It also informs buyers whether or not your products are relevant depending on how low or high the price is in regards to its substitutes. When you charge more for your service or product, it gives you more time and resources to create a better service or product that helps your business deliver better service.
How should I price?
You might be wondering, how then should I price? Before we decide how to price we need to make sure we know what price is.
Price is determined by the business and includes the cost of making a product plus profit. Cost is the amount of money a business uses to create a product. It can include things like materials, salaries, subscription plans, gear, labour and rent.
Different businesses will earn different margins of profit. Profit can range anywhere from 5% and beyond. Your businesses need to assume some risk with your profit margins. When setting your prices you need to consider internal and external factors. Internal factors include things like production and marketing costs. External factors are things like competition, the demand of the product or service, economy, government, resellers and social factors.
Depending on the current market, your business can adjust its pricing to fit its needs. Through market and customer research, your business can find the perfect point to set its price. Look at competing brands to give you a rough ballpark of the range you should be in. A more specific way of pricing is through value-based pricing. You might already be familiar with cost-plus pricing which includes the cost of making a product or service and the markup. Value-based pricing on the other hand includes cost, markup and perceived value.
Value-based pricing requires research on customers’ needs and values. After you’ve researched what your customers want, determine how you will price your products or services concerning other competitors. Researching your competitor’s businesses will allow you to realize the advantages and disadvantages of your products or service. Lastly, produce a product or service that satisfies or exceeds your customers’ value.
In simpler terms, before you set your value-based price, consider your customers, competitors and the market. Value-based pricing will help your business generate more sales. When you create products or services that customers need, your business’s value will increase which will allow your business to place a higher price on your products or services. Knowing your customer’s wants and needs will allow you to provide outstanding customer service.
Why are Apple products so expensive?
Apple products are an amazing example of value-based pricing. Apple has the most expensive products in the market. Through its clever marketing, sleek packaging and design of their products they can price their products at a higher amount. The smooth and seamless process of purchasing a product in-store or online adds value to their products and Apple as a brand. There are many Youtube videos online of customers unboxing their new Apple products. These videos increase the value of Apple products and highlight the importance of packaging. Purchasing Apple products not only allows customers to have a new piece of tech but it allows customers to show off their status which increases value.
How can I convey my business’s value to my customers? What is the secret of charging more?
Value is determined by the customer. Customers will pay for a product or service when they believe that the value exceeds the price. Customers won’t purchase something if they do not see the value. In order to avoid this, your business can influence customers’ perceived value through branding. Try communicating your company’s value to your potential client through innovative marketing.
Some methods include putting out content through websites and social media platforms, well-thought-out packaging, and presenting testimonials. Your testimonials should showcase how your service or product can cater to a wide demographic. It is also important to remember not to price your products or services for too cheap. When your price is too low customers may not see the value or doubt the legitimacy of your brand. Some customers would rather pay more for a trusted brand.
How did the “Share a Coke” campaign increase value and sales?
Coca-Cola’s “Share a Coke” campaign is an amazing example of how packaging can increase sales and perceived value. In 2011, Coca-Cola launched their “Share a Coke” campaign and placed 250 common American names on Coke bottles in hopes to create a more personalized experience for its customers. The campaign name, “Share a Coke” was short and easy to remember, incentivizing many individuals to buy a bottle of Coke to gift their friends and family.
This campaign proved to be successful in increasing sales and received great responses as many individuals shared pictures of their coke bottles on social media. Coca-Cola was able to produce an emotional tie with its products through its new packaging thus increasing value.
It is crucial to understand the basics of cost, price and value because it can increase your profit and allow your business to appear more knowledgeable and credible. Having this understanding can also facilitate more productive conversations and negotiations with your clients to fit the needs of both sides.
Failing to properly calculate the cost of producing a certain product or service will hinder you from pricing your product or service at the perfect place. When your price is set too low or high, you will lose customers who do not see value in your business. If your business can create a valuable product or service, price the products or services at a perfect price, address customer’s wants and needs, convey value, you can build a business that can generate profit.