Setting prices can be a hand-wringing event. Set them too low and you may miss out on profits and position your company as cheaper quality. How and when do you change prices? And, as your business grows how do you pass off the price setting to someone else and have them understand your strategy? There are a number of strategies that leaders use to identify the right prices that urge customers and clients to buy. We will discuss 9 here.
- One Pricing – “One Pricing” is where all items in your grouping have one price regardless of location, promotional offers, method of payment, or other factors. Think the 99 cent store, or a Mix and Match sale where every selection is the same price. The psychology would be that you can allow the customer to purchase what they want without differentiating based on price. One negative to look out for is that latest research debunks this idea as promoting sales, and instead that without differentiating the purchaser cannot make a decision which is better for them.
- Price Anchoring – Price anchoring is a strategy where you have differential pricing for your products in the same group and the first price you reveal or prominently display is the one with the highest price. The price is anchored in the purchasers mind, and then the next price that you reveal looks more affordable by comparison.
- Good, Better Best – The Good, Better, Best pricing strategy is a tiered pricing strategy where there are exactly three levels of value for each product or service and the purchaser self-identifies which level of value and price best meets their needs and budget. Think of wedding rings. You may one set of products that are quality that meet the standards of your brand, but the designs are simple and the stones are an acceptable level, and the price is affordable. This is the “Good” level. The “Better” level will have more trendy designs, and a level up of stone quality and make a status statement. The “Best” level will have the best quality stones, the hard to find stone cuts, the highest grade metals and the highest prices. Or if you own a property management business that has several vacation properties, your “good” would be your “off peak” times, your “better” would be the shoulder season times and the best would be your peak times.
- Package Pricing – Package pricing or bundle pricing is when you pull together a grouping of goods and services including extra value-added items that pull together a nice package of experiences that has a greater value than the total price of all items bought individually. Package pricing could a “value meal” at a fast food restaurant, or a romantic weekend package at a hotel that includes the room, dinner, complimentary happy hour activity, etc. Package pricing is a way to pursue your profit in the transaction with a grouping of products or services instead of just one.
- Funnel Pricing – Funnel pricing really has taken hold in the last few years as a result of online selling. Historically in any selling relationship has a sales cycle, and generally the more expensive items have a longer sales cycle while the purchaser learns about his/her needs, the landscape of the products or services and your product or service. Online often sales people are not working live with customers through the education process, and instead the client is self-navigating through online material. So, a sales funnel allows the customer to begin to get to know your company with very low risk with an affordable or sometimes even free lead product (such as a “free trial”). Often times a free product is in exchange for an email, upon which you an inexpensively market to the customer. The next product offered would be a low dollar purchase, and then products/services with increasing value items. Some common language you will hear about funnel pricing is Lead Magnet (free item), Trip-wire (inexpensive product to get a taste), Core product (your primary solution), Profit Maximizer (additional products/services drafting on the success of the core product), and High Ticket (your most exclusive, custom highest ticket items). Funnel pricing is for pricing a whole product or service line, and you can apply this technique to any products or services where you have many other levels besides the core product or service.
- Subscription Pricing – Subscription pricing is a pricing structure that allows the purchaser to buy an unlimited or slightly limited access to a select group of goods or services for a monthly or other frequency payment. Companies often try a subscription model when they are trying to acquire new customers, increase lifetime value of customers, add the benefit of recurring revenue to the business and reduce client churn by taking extra good care of your “members”.
- Promotional Pricing – BOGO (Buy one, Get one Free), 20% off, The more you buy the greater the discount and dozens more are examples of promotional pricing. Promotional pricing can be one of the most powerful strategies because you can direct when you will receive sales, move the inventory you want and build loyal customers at the same time. Taken too far or too often and you may change your brand in the customers’ mind in a negative way, to being seen as a discount provider. But when done selectively and done right it can be a very useful strategy.
- Magic Numbers – What’s in a number? There is some psychology behind which numbers you choose to prompt buyers to want to buy. For example ending your price in a 9, or offering a $30 item for $29.99. What is it about the $29.99 that makes it look less expensive? Some of it is about coming right to the edge of a price ceiling and being just one penny under it. For example, iTunes launched selling their music sales with $.99 songs, not $1 songs, maybe because they want it to seem like pennies and not dollars?
- Premium Pricing – Ever thought of raising your prices to sell more? Sounds counter-intuitive, right? But this actually works when you are using a premium pricing strategy. In this strategy the price itself puts your product in the premium quality range. Let’s say for example that you were being unfairly sued for a colossal amount of money. And when you are looking for an attorney wood you go with the cheapest you could find? Probably not, because we naturally believe that less money means lower quality, and after all you want to win this unfair lawsuit so here is not the area to penny pinch. So ask yourself “what does our price say about our product or service?”
Ready to mix things up? Many of these pricing models will work for just about any business type. Try thinking outside of the box and see if you can find benefit in trying out one of these strategies.