It is worth noting that no business ever succeeded by guessing at what prices it should set it’s products or services at.
Pricing within a business requires a good strategy. Practically all businesses can improve their pricing strategy and ultimately their sales performance, provided a structured approach is taken.
When should you adjust your pricing?
How often do you re-evaluate your prices? When was the last time you gave it serious consideration?
Many business owners do not know where to begin when it comes to pricing. Some feel stuck – as though if they raise their prices then they will instantly lose their customers to their nearest competitors.
Businesses rarely lose customers when they increase their prices. As long as the perceived value is still there to the customer, the sales will carry on coming.
It does take nerve to adjust your pricing, and if you do it correctly, you will enter a win-win situation.
Why are pricing adjustments important?
The prices you charge correlate to the profit you make. A pricing strategy should always be at the heart of your strategic planning. Changes in pricing can boost all aspects of your business. A boost to your business leads to growth… This is what most people are in business for!
When we look at our businesses, we realise that pricing is the most overlooked component of business strategy. The average company spends around 6 hours in the entire lifetime of the business creating their pricing strategy. A lot more time should be put into this, as the monetisation of your services impacts your company’s bottom line.
- A 1% change in your pricing plan can increase your bottom line by up to 12.70%.
- A 1% change in retention and acquisition will only improve your bottom line by 6.71% and 3.32%, respectively.
You must constantly improve your pricing strategy in order to improve your profit.
Just a 1% change in your pricing will force you to consider why you are making an adjustment. This will make you align much better with your products, and why you offer what you do. You will be motivated into creating value-based pricing – this being the scalable ‘core value’ and benefits that your customers receive from your product or service.
Changes in Pricing Plans?
Many companies constantly change their pricing plans. This is particularly prevalent in companies who offer monthly and annual fees.
The video hosting service ‘Wistia‘ is constantly changing their pricing plans in order to help them to develop and grow. CEO Chris Savage openly stated that the only way to collect data on their prices was to charge ‘something’ and then experiment. This enables a business to quickly learn what their customers perceive as good value or not. Wistia stabilises their bottom line by optimising their monetisation. They have learned value-based pricing, and have learned how not to undercharge but also not to overcharge. Seeing the longevity of a good customer relationship has been pivotal for them.
A price increase and pricing strategies do require constant maintenance to keep your business flowing and growing. Do not make your pricing decisions without careful consideration. As a business owner, you are responsible for the offers your business makes.
When should you think about adjusting your pricing?
It is a good idea to assess your pricing strategies around every 9 months or so. With a constant surge in new products and services, technology and competition, you should endeavour to make sure that you are not left behind. Of course, each business is different – a fast paced retail outlet may assess their pricing every few months, whereas an accountant may assess theirs every 18 months or so…. There is no set rule. It is down to you.
If you have a surge of sales, then this could be a good chance to look at your pricing strategy. You could try to offer a higher perceived value to your customers in order to raise your prices slightly. A few tweaks are all it takes to increase the value that your customers believe that your product or service has. You must also look at your customer journey in line with your pricing strategy. What more or less can you offer?
You must always look at how your product or service solves a problem that your customer has. This is where you place the value of what you offer – you showcase the benefits and not the price. If the benefits are there, then this increases the value. People usually buy on value and not on price – value based pricing is not detrimental to your business. If you offer good value, you can rapidly increase your market share within your offered niche!
Your pricing process should include market research, communication, marketing strategies, team brainstorming, and the assessment of your fixed and variable costs. Your direct and indirect costs must always be taken into account.
Pricing methods should be based on your own market, learning about your customers, and learning where your potential new customers are. You should understand who your target market is, understand how pricing affects the rest of your business, and know the current market conditions. These factors are what will help you to create a common pricing strategy, a premium pricing strategy, and steer towards the correct target customer.
Be aware that pricing approaches vary from business to business. You must conduct your research to see where your value lies.
Offering the lowest price is not always the best approach. Do not price yourself out of the market. Adapt and offer more value.
What steps should you take?
Do not sit back and wait for your direct competitors to make the first move. Be the proactive leader. Create your competitive marketing strategies create your own competitive landscape. You are missing out on huge opportunities if you do not do this.
- Psychological pricing: This is the trick of not setting your prices at a ‘whole number’. Many use £9.99 instead of £10, or £97 instead of £100. The theory behind this is that certain prices have a psychological impact – the drop beneath the whole number makes it look like a good deal…. Our human brains do love a good deal!
- Do market research: Your decisions will be more informed and precise if they are backed up by your research. Know and understand your customers through information and data gathered instead of simply relying on guess work. Look at your past pricing and sales trends. Try to see patterns of the ebbs and flows… See how your customers have reacted to pricing changes in the past. Carry out a survey to hear what your loyal customers have to say.
- Communicate: It is vital you communicate with your customers about your products and pricing. Know what they need, what they value, and how much their budget is. Market rate and market demand do need to be considered, but they are not everything if you already have a customer base. Good communication will help you to openly and effectively explain your price increases and maintain a good relationship at the same time.
- Combine the effort: If your business has multiple teams or departments, you will all have to be in alignment of the company goals, strategies, and expectations. Everybody must be singing from the same hymn sheet so to speak. Efforts must all be geared towards the same mission and goal. Be open with everybody about the sales and marketing strategies, customer journey, and product development. Everybody should feel included and know their role within the pricing plans.
- Existing customer relationships: The relationship you have with your current customers are more important than any with potential customers. Loyal and returning customers are the life blood of any successful business. They must know that you care for them and treat them as an individual – make as many customers as you can feel as special as you can! It is these existing relationships that make all communications about price adjustments worthwhile. Talk to price-sensitive customers individually, and remember that honesty is always the best policy. You may wish to keep some existing customers on the old pricing plan, and only introduce the new pricing packages to new customers.
By carefully planning and communicating your new pricing, and incorporating them into your marketing tools and marketing objectives, you can keep old customers happy and entice new ones in through your door. This can give you peace of mind and the competitive edge.
Do big companies really alter their prices?
Recently, video-streaming service Hulu announced it was reducing the price of its most popular subscription plan. The change happened at the end of February, saw the price of Hulu’s ad-supported plan decrease from $7.99 to $5.99.
The drop was all part of a new pricing strategy. The business decreased prices in one area, yet increased the price of its live-TV option from $39.99 to $44.99. This immediately placed Hulu as the cheapest option among competitors.
Hulu boasted a subscriber base of more than 25 million. This was a jump of 48% from the previous year. With the changes to the pricing strategy, Hulu’s subscriber base should continue to thrive.
Many online subscription services are constantly changing their pricing – some are offering long reduced rates to new subscribers, and once these expire, the value of the subscription suddenly shoots up.
In our increasingly competitive world, we must regularly evaluate our pricing strategy.
Are we currently taking a good market share? Can we make adjustments to outsmart our competitors? Are our competitors outsmarting us? Is our current approach working?
We can all make adjustments if we really set our mind to it – offer an increased value for an increased rate…. But how do we know that our current offers are out of date?
Your subscriber rates start to decline
Many businesses are afraid to lower their prices. We understand this! It is because they don’t want to be seen as the ‘cheap’ alternative. Many consumers link prices with quality – being at the cheaper end may just turn potential new customers away.
It is worth remembering that when one certain niche or market is flooded, it can be difficult to stand out from the crowd. A lower end or higher end pricing strategy may be what it takes to give you the market share. It could be that lowering your prices and offering a ‘no bells and whistles’ option will attract customers who are stuck to a budget.
You are not reaching your profit targets
Beauty subscription business Birchbox recently announced they were raising their prices for the first time since 2009.
Their new pricing strategy raised Birchbox’s $10 monthly fee for new subscribers, to $13/month for a yearly subscription. They also adjusted their prices to $14/month for a six-month subscription, and $15/month for a monthly subscription. They held their current subscription members to $12/month for a yearly subscription, $12.50/month for a six-month subscription, and $13/month for a monthly subscription. Subscribers have been promised an improved service for the rise. They made a point of not raising the price for their Birchbox VIP members, who spend at least $300 a year on the site. A good incentive to make people spend more to save more – time will only tell if the sales psychology behind this will work….
Increasing profits is usually one of the main, if not THE main reason, that a business will raise their prices.
Your repeat custom is very low
When a business makes initial sales, and then fails to gain any repeat custom, there is a problem. The customer journey, value and pricing strategy needs to be re-considered. It may not always a big huge price rise or drop that is needed, but often the three mentioned pointers do go hand in hand.
By offering a flexible pricing strategy for your services, you can appeal to a wider range of customers. You offer different levels of value, and charge accordingly.
You must always try to retain your customers. Increase your communication with them, and let them know the true value of what you offer.
Evaluate your prices today!
There is no point in sitting on your laurels if everything is going well. What is working now may not work in a few months time.
All businesses must evolve, and you should never wait until you are in difficulties to start. You must have your pricing strategy ready to go. You should always try to monetise what you can. where you can.
Products and services very quickly go out of fashion. Strategic planning can go a long way to keeping you afloat. Brainstorm options that will later become actions. Equip yourself with the right planning and processes today to invest in the future of your company.