These include the nature of the product or service, the target market, brand equity and positioning, distribution strategy, the scarcity or availability of the commodities in question, right down to factors such as packaging, product quality, originality and even current economic and inflationary trends.
In fact, the variables are so many and varied that it can feel like one needs to be a combination of the actuary, cost accountant, marketing guru, MBA and psychic to stand any chance of getting it right.
Frankly, it doesn’t have to be that complicated. While we would caution against simply whacking 100% on your costs (as many do) to arrive at a selling price, if you follow a few fundamental truths, you should be able to derive a price that is right for you and your customers.
A recent report by McKinsey found that across most of the Lifestyle Series Monitor (LSMs), insights show that although price is becoming a more important determinant as living costs spiral, a large percentage of consumers are still more concerned with value than price – in other words, people will pay the price asked as long as they feel they are getting value for their money.
So, your job is to find ways of adding value to the customer who buys your product or service. Some examples might be a five-year guarantee on the product, a loyalty programme (previously seen as the domain of the big brands only, but not anymore), competitions and giveaways, and any other activities that create the perception of ‘good value for money’.
Our philosophy as far as discounting is concerned is a simple one; it has to be a two-way street. ‘I give you a discount, and you give me something back in return’ is a pretty good strategy to follow – perhaps that ‘something’ is a bigger order, a deposit to help with your cash flow, more favourable payment terms, a longer contract period or some form of brand exposure or promotion. The alternative is just taking money out of your own pocket.
You do this in several ways – excellent product knowledge, an understanding of your competition and what they offer (and charge) for similar products and services, a clearly defined set of USPs (uique selling propositions – those unique, value-adding elements that make your product or service different or special).
Most importantly, the confidence and belief in your product or service to stand your ground when necessary. Rather lose a sale in the short-term, than be bullied into selling at an unsustainable price. We always encourage entrepreneurs to take a long-term view on pricing and to avoid too much short-term sacrifice unless it is strategic.
As we said at the outset, pricing is not an exact science. However, by blending a bit of confidence and common sense with a more strategic approach, you can develop a pricing strategy that fulfils its primary aim – to make your business profitable.
