3 Major Pricing Strategies For Your Product or Service
In a previous article, I discussed the power of pricing and positioning. As a business, your price structure plays a vital role in your ability to convert a prospect into a customer. In that article, I dove deep into how to position your product or service to attract customers and set yourself apart. Today, we’ll be discussing 3 strategies you can use to price your service and make it attractive to the customers whose attention you’ve captured. These strategies will use data to help you better connect with your target audience so that you aren’t competing on price alone.
The question of the day for many businesses is: how much should you charge for your product or service?
Deciding how to price your product depends on the type of customer you’re hoping to appeal to. Whether you’re focused on high-quality clients, who are comfortable paying premium prices, or you plan to appeal to a broader audience at a lower price, the main question is- what value can it provide them?
For the price point to make sense to your target customer, you have to sell the benefit to the right audience, which takes us to the first strategy you can use.
The Value Stack Pricing Strategy
There are two goals to the value stack strategy. The first is to get your target customers excited about what you’re offering. The second is to demonstrate your ability to provide them with precisely what they’ve been looking for. This is the easiest way to increase your service’s perceived value and appeal to a broader audience, without devaluing what you have to offer.
I’m sure you’ve seen this in action. A business bundle in additional bonuses, savings, or even products at “no extra cost” can add value to the product while highlighting the savings.
For example, Product A is priced at $99. Using the value stack strategy, you would offer Product B, which you would typically sell for $59, as a free bonus—therefore increasing the value to your customer from $99 to $158.
This has proven to be an easy way to persuade your customers to see that they’re getting the best deal possible. It also allows you to appeal to the different logical groups of customers, as well as those driven by benefits and scarcity. When it comes to your products and their overall perceived value, pricing matters. Simply lowering your price to compete in your market could ultimately backfire. Besides reducing your profit margin, and risking a loss- it could make your offerings seem less valuable.
You never want to compete on price alone.
On the other hand, pricing your offers too high may deter even the most dedicated customers on the hunt for quality products. The value stack strategy puts you in a better position to compete. Remember, before you decide on a specific price for your product or service, make sure that you’ve done your research to understand your worth to the customer fully.
You can do this with market research. Analyze the top sellers in your industry to determine the level of resistance based on different price points. You can always change your prices later. The beauty of having your operation is that you can always test different marketing variations, especially price structures. Just keep in mind that it’s easier to increase a price later than lower the price without upsetting your current customers.
To find the perfect price point for your product or service, you’ll have to do a bit of market research. You can do this by analyzing the top sellers in all three price groups: the most expensive, the cheapest, and those in the middle. This is known as “filling the gap,” which takes us to our second of the three pricing strategies.
The GAP Pricing Strategy
The GAP strategy is a great way to fill the void. By adopting this pricing strategy, you’re catering to the market that sits between one end of the price spectrum. In many cases, this group is far easier to market to because they’ve already passed over the products that are too expensive and over budget, and the ones that are priced so low that they question the quality.
Begin by researching your competitors who are positioned on at a high price point. Then, look for those who are at the lower end of the spectrum. Lastly, find what the middle ground is and use that to assign a price point to your product. By following this technique, you’re using data rather than emotion to set your service price.
Amazon, Google, and Facebook are good marketplaces to start finding your competitors. Take notes, precisely the benefits highlighted in their products and their pricing strategy. Do this across all the major platforms, and you’ll quickly end up with a snapshot of your entire market. Once you have those numbers, calculate the average price point and then fill that gap!
Once you’ve calculated what your price should be your next step will be to justify this price point, and you do this by highlighting the benefits and differences in your offer.
Again, look at this from the customer’s point-of-view. Study your market well enough to know their triggers and the best ways to persuade them to take action. Learn the marketing language that resonates with them and always focus on how your offer will improve their lives.
In the words of Bill Gates, “Only a few businesses succeed by having the lowest price.”
Your goal isn’t, and shouldn’t be to undercut the competition. Your goal is to stand out in your market through strong positioning. With clear focus and a strong pricing strategy- comes strong positioning.
The Loss Leader Pricing Strategy
The last of the three pricing strategies you can try is a popular one that will help you gain attention. It could establish your business in your market, while removing decision-based barriers for your target.
This pricing strategy is called the loss leader pricing strategy.
The loss leader pricing strategy is where you sell the initial product at a low price to gain your market’s attention while up-selling the higher-priced offerings.
The key to being successful with this strategy is to have a strong sales funnel sequence. Starting with your lowest-priced offer and then finally, to your highest-priced one. This strategy only works when you have a series of products. If that’s not the case for you- you’ll want to build up a suite of products first. After you’ve built them up- you can implement the loss leader into your marketing efforts.
Where would this pricing strategy work?
You can see this strategy in almost every market. For example, professional and business coaches will often price a book in their series at $5. Then, proceed to price every other book at $10 or higher- offering coaching sessions available later on for a significantly higher price.
This pricing strategy lowers the barrier and invites readers into their funnel with minimal risk. It makes it easy to persuade those who are new to the coach that they should take a chance on then, and in turn, as they complete the first book, they are immediately directed to purchase book two and, eventually, the 1-on-1 coaching session.
The loss leader pricing strategy is also a great way to test different industries as your market and target customers won’t have high expectations when purchasing at a lower price point. This will lead to lower refund rates, as well as support requests. Allowing you to focus on creating other relevant services that become part of the suite of services that you can use to support your customers.
To be successful with pricing and positioning, you have to know your audience. By making sure to keep a close eye on your market and understand what potential customers are looking for, the easier it’ll be to determine your services’ best price point.
Avoid competing on price alone. Regardless of which of these three pricing strategies you decide on, stay focused on what your target values most. First VALUE- then Pricing Strategy. If you create a marketing message that resonates with your core audience, you’ll be able to maximize conversions and increase your sales regardless of your price structure.