When small businesses struggle to grow – or even survive – the role of pricing is often misunderstood. Many entrepreneurs assume that price increases put them at an automatic disadvantage. But that’s not necessary so if you have a clear pricing blueprint for your business. Pricing consultant Rafi Mohammed, for example, argues that small, strategically targeted price increases can actually give a company a competitive edge.
Here are nine pricing tips to consider:
1 Avoid the markup mistake: The most common pricing pitfall is setting your price based merely on a set markup. Such cost-plus plans often forego potential profits because they never account for what customers are willing to pay.
2. Price for value: Take a lesson from street vendors who understand better than anyone the principle of value-based pricing. Umbrella prices go up the moment it starts raining. It has nothing to do with the cost of the goods, and everything to do with the value the customer places on the product.
3. Know your value proposition: Create a “value statement” for all of your products and services. This is a simple declaration of why you are proud of what you sell, and why customers should buy it from you instead of someone else.
4. Avoid one-size-fits-all: Pricing is more personal than you might think. Customers have different needs, product preferences and expectations. For example, some prefer package pricing, while some like a la carte. Implement a series of pricing tactics that serve those different needs.
5. Let customers choose how much to pay: Most businesses can boost profits by offering “good, better and best” type choices for a wide range of products and services. Think about creating different versions of what you offer at different price points.
6. Spur dormant customers to action with new pricing: New pricing can attract potential or former customers who are interested in what you have but who have stayed away because the pricing structure doesn’t work for them. Small resorts offering an “all inclusive” price, for example, can capture business from high-end places that charge $6 for a soda – but still build in attractive profits.
7. Create a different offering for your most price-sensitive customers: For any given product or service, some customers are willing to pay more than others. Offer a spectrum of prices based on customer actions. For example, those who line up to be “first to own” (think Apple iPad) are perfectly willing to pay a premium price. Those who drive an hour to shop at outlet malls aren’t. It’s a pricing jigsaw puzzle. Each new pricing tactic you create has the potential to add another customer segment to your mix.
8. Focus on profit, not margin: Many businesses equate “high margin” with pricing success. Maybe so, but a high margin can also point to opportunities to serve more customers by using discount tactics as well. Profit is your goal, not margin.
9. Don’t discount across-the-board: Discounting can be damaging if handled badly. Mohammed recommends this: “Hold steady on prices to maintain current purchases, and then implement pricing tactics — such as discounts, lower versions or financing – to keep and attract new price-sensitive customers.”
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Filed Under: Marketing
About the Author: Daniel Kehrer, Founder and Chief Content Officer of BizBest Media, is a senior-level leader in digital media, content development and online marketing with special expertise in startups, SMB, social media and generating traffic, engagement and leads. He holds an MBA from UCLA/Anderson and is a passionate entrepreneur (started 4 businesses), syndicated columnist, blogger, thought leader and author of 7 business and financial books.