Knowledge

How To Price Your Product (or service)

Pricing is one of the toughest things to get right. 

 

You can spend all that time on your sales funnel, writing eye-catching ads, being in the right place at the right time, getting the website click and then… nothing. Your website traffic is flowing but nothing is being sold.

 

There could be many reasons for that, but today I want to focus on one. PRICE.

 

One simple word yet so complex!

 

How on earth do you find the perfect price for your product?

 

Let’s be clear here, this is not an exact science. It’s a combination of psychology, marketplace, competitors and your audience. (Even that sounds stupidly oversimplified!)

 

Anyway, let’s do our best…

 

Cost-based pricing

 

This is one of the most simple ways to price your product. You simply take your cost add a % markup and voila that’s your final cost price.

 

Eg: The widget costs you £1, you also have fixed costs of say 50p, then you add a 100% markup. 

 

The cost price becomes £3.

 

Now that’s not very scientific, but a pretty simple way to do things if you have a lot of products and don’t have the time to conduct deep research on each one.

 

I think my local garden centre does this… although he seems to mark things up by 500% just for sport. £25 for a spade anyone?

 

Market-oriented pricing

 

Here you become a bit more nuanced with how you price things, basing the final price on how your competitors have priced a similar product.

 

How does this work?

 

You have three broad options:

 

  1. Price your product higher than the market
  2. Price your product at the same price
  3. Price it lower than the market

 

If you go for 1, you are claiming that your product is superior, and is worth a premium. You are attracting the customer that wants the best and is prepared to pay for it.

 

We see this in all walks of life, from cars to coffee. 

Starbucks charges £3.50 for a coffee that you can get elsewhere for £1, but they market themselves as a premium brand. Better coffee and a better experience. 


They aren’t interested in competing on price.

 

Let’s look at number 3 (being the lowest price). This is a way to bring in customers who are price sensitive. 

The theory being that if your product is more of a commodity-based product, customers will be drawn to paying a lower price, so you will sell more.

 

This can work for certain items but not others. It does need to be congruent with your brand and offer.

 

The £1 shop is a good example. 

You know it’s cheap, you don’t expect high quality but you don’t need it to be. 

 

They are positioned as a low priced brand. You wouldn’t go in there looking for a new Rolex…

 

Compare that to say Harrods…. (I know I know!) you aren’t expecting anything cheap in there. You expect that store to pick the best products to sell and price them accordingly.

 

Beware you don’t fall into the pricing trap here. 

It can be tempting to just price lower and lower and lower to grab customers but that can be a slippery slope.

 

Consider your margins, can you really operate on a slim margin like that?

 
How about the added work? More customers = more questions, support and returns.

 

Be strategic. 

Can you entice customers into your online store with a low priced popular item that you make almost nothing on? Or even lose money (a loss leader) to then sell them something with more margin either at the same time or later on?

Supermarkets do this all the time with certain common items. They’ll get you in to buy eggs, make you walk right to the back of the store, by which time you’ve grabbed thirty quids worth of other stuff! We’ve all done it…

Variable Pricing

 

Probably one of the best pricing strategies to use is variable pricing.

 

This does depend on what and how much you are selling, but this type of pricing takes advantage of constantly changing supply/demand dynamics in your marketplace.

 

With this method, you can keep a fixed higher price and then offer promotions, discounts and deals during certain times.

 

The higher price acts as the anchor, psychologically telling people this is the value. 

Then you offer a limited time discount. Leveraging on fear of missing out and the perception of a great deal.

 

You can also try bundling products together and offering group pricing. This works great for digital products when the margin is very high but works well for physical too.
Meal deal anyone?!

 

Pricing is a huge topic and having an intimate knowledge of your industry and customer is essential. 

Understanding the problem that you are solving with your product or service and the value of that problem plays a key role. 

 

I think the important thing is to experiment. Try new pricing strategies. Raise your prices, play around with deals, see what works and what doesn’t. 

You can often make big changes to your income by doing nothing more than tweaking the pricing.