Often, companies mistakenly price products and services solely from their own perspectives as sellers.
There are 11 typical pricing mistakes that should be avoided.
Businesses should focus on the perspective of the customer about value – not solely on offering the lowest price in the marketplace.
Psychology for setting prices
A minority of customers focus solely on price – people who can’t afford not to save money, and people who want to save money.
My research continues to show at least 80 percent will base a buying decision on five psychological perceptions of value. Not all buying decisions are based on what you might automatically think is logical rationale.
Therefore, in the following order, you must know the answers to these questions: What does the customer think of you and your employees, your company’s image, product or service utility, price, and the convenience of doing business with you?
For more expensive items, perceptions about price often include the cost of payments in financing. That’s especially true when the purchaser pays and uses the product on a regular basis.
Specific numbers play a psychological role. That’s why you will often correctly see value-pricing for fast food end in the number, nine, such as $3.99.
For more luxury items, a psychology of quality is what counts. So quality pricing will often end in the number, zero.
Businesses should focus on the perspective of the customer about value – not solely on offering the lowest price in the marketplace.
My definition of marketing: The understanding of your customer for the cost-effective process of selling the right product or service at the right time and at the right price.
Therefore, it’s important to closely monitor your cost structure to generate profits, as well as your customers’ motivating perceptions and the approach of your competitors.
Eight Basic Pricing steps
1. Conduct a full-scale SWOT analysis of your strengths, weaknesses, opportunities and threats.
2. Analyze your marketing strategy, which includes an assessment of your marketplace, targeting and branding.
3. Determine your marketing mix by defining your channels of distribution and campaign maneuvers.
4. Forecast your demand curve by anticipating how your product quantity will fluctuate with the price. Not to oversimplify, consider whether an increase in price decreases your revenue or a decrease in price will increase your revenue.
5. Gauge all your costs – be sure to determine both your fixed and variable costs. Fixed costs, such as office rent payments that remain at the same amount. Variable costs, such as fuel for your vehicles, can change because of gas-station prices or if your vehicle mileage go up or down.
6. Anticipate your marketplace dynamics or environmental factors – whether they are competition or legal considerations, such as government regulations, or impacts from short-term or long-term strategies.
7. Slate your pricing goals. That can include maximizing your profits or stabilizing your prices.
8. Establish your prices, including your methods and structure. Determine the limits of what you’ll offer in discounts.
In addition to the psychology of pricing, you have other choices such as bundling to sell more products; penetration pricing, offering free or loss leaders to launch a new product; variation pricing, like the airlines that sell a flight’s first batch of tickets at the lowest fare; or geographical pricing where the location determines the price.
From the Coach’s Corner, here are related resource links:
Groupon Will Give You a Migraine for Ignoring Pricing Principles — Whether you’re an investor, small-business advertiser or even a customer, daily deal sites can give you a major headache. Continually, there are red flags about Groupon.
Hottest Tactics to Beat Your Competitors — Effective uses of competitive intelligence are the hottest tactics to beat your competitors. A leading consultant and author, Seena Sharp, explains how.
Think 1930s for Business Success…Consumer Attitudes are Changing — Hyper-consumerism is history. Traditional values with a purpose are in vogue. Traditional values – old-fashioned, if you prefer – describe the new mindset of consumers and what they expect from business.
Secrets to Success in Recessions: Expand Marketing — Businesses are self-destructing when they cut back on marketing in downturns. If evaluated and implemented properly, marketing creates a return on investment in multiple ways.
“Without change there is no innovation, creativity, or incentive for improvement. Those who initiate change will have a better opportunity to manage the change that is inevitable.
-William Pollard
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