The Importance of Pricing Strategies in Marketing
Small businesses are vital to the US Economy. That’s why small businesses are called the Backbone of the America. Even so, most small businesses with no employees average just $45,000 annually in revenue, more than half of these businesses generating $25,000 or less (Intuit, 2015). Keep in mind, this is gross revenue, not profit. While a variety of factors can impact revenue potential, pricing is one that rises to the top. As such, we’ll be addressing the importance of pricing strategies in marketing.
No One-Size Fits All
A good pricing strategies will allow you to increase and maximize profits. Setting a price on your products and services isn’t simply about underbidding your competitors. I’ve talked several times about being the lowest price model as a losing strategy. Going the polar direction and throwing potential customers into sticker shock, might result in no business… as well as going the middle road. It may sound like I’m saying no price point is a good price point.
Really, I’m encouraging you to come at your pricing strategy with an open mind. Understand and accept that your business is unique. What fits for one company may not fit for yours, so think your pricing strategy through. You might consider starting with your financials. What is your breakeven point? From a business perspective, it makes little sense to sell at no profit, or even worse… find the cost to do business is higher than the ability to make a profit. Also, take time to consider whom your target market is. Understand what your target market really wants.
It’s about Perceived Value
Keep in mind, purchasing is often an emotional decision. Consumers have problems and they buy solutions to fix those problems. The value they place on those fixes is subjective. It reminds me of an ugly car my husband pointed out to me a few weeks ago. He said, “now that is a nice car.” The shape of the car was different. I’d say it had uniqueness to it, for sure. Yet it looked awkward… a design to stand out for no good reason (in my opinion).
I asked my husband, what about it is nice. He mentioned it was made by some expensive car company (can’t remember at the time). Then he said, that car costs a lot of money. I asked him what he thought about the design. He said he wasn’t much into it. Like I said, the design was awkward looking. Then he started talking about other cars he’d rather have by the company, and started rattling off some letters and numbers. I’m telling you this story to show how subjective value is. We place value on an object based upon our perspective. This is why there are so many different price points in one industry. The bottom line is this:
Develop a price that makes sense
In a previous article, I shared with you some pricing strategies you might consider incorporating into your business. Keep in mind, regardless of the tactics I provide you, it’s up to you to create a pricing strategy that works for you. You’re unique and so is your company, so have a price strategy to match.