Price setting is a part of the responsibility of being in business. Setting a price sends a message to the market. In this article, we explore what you need to consider.
What is the right level for you to set prices at?
Have you thought about what your strategy is in business, and in particular, what your pricing strategy is? There are many different strategies, some of which include:
Value-based pricing – price set according to the value perceived by your customers
Competitive pricing – price set at the same level as your competitors
Price skimming – price is initially set high and then reduces over time
Cost-plus pricing – this strategy is generally for products; it involves the product cost plus a margin
Penetration pricing – this often occurs for the pricing of new products, designed to gain customers, a sales pipeline, and influence other buyers to make a similar buying choice; the price is initially set low and then increases over time
The one that is right for you is the one that connects you and your customer's willingness to pay.
Building your confidence with setting a pricing strategy (i.e. increasing prices)
Just as in other aspects of our lives, by repeating a course of action, we will generally help in building our confidence. Planning our pricing strategy helps us gain confidence in our ability to articulate any change in pricing. Our ability to communicate our pricing strategy helps build trust with our customers.
Having confidence means you are
Positioning your brand in the marketplace
Building trust and confidence in your offering
Without confidence means you may
Have to work harder convincing prospective customers to choose your product or service
Will introduce hesitation into your customers decision making
Attract the wrong type of customer
Characteristics of an effective pricing strategy
Each time we set our price, we will generally consider the following:
Our customers perception of our value
particularly product and labour costs
our operational processes
Our target customers
Our growth intentions
find increasing or managing your pricing levels hard, we recommend setting an anniversary date for increasing prices, mainly if you are providing a service.
are affected by fuel costs, you will be reviewing your pricing structure frequently
are in the hospitality industry, you will constantly monitor this, particularly with each menu change.
Implementing your pricing strategy
Once you have identified your pricing strategy and positioning with pricing characteristics, you can identify tactics to help implement a planned price increase.
Examples of pricing tactics include:
Of your products and services
Of your customers, understand the customers who don't value your service, and evaluate what they cost your business. Would your business be better off without them?
For the anxious owner, start by increasing prices with new customers.
Communicating your price increase
No one knows your customers better than you do. So you will know what the best strategy is for communicating a price increase. Some strategies include:
Contact your customers directly, letting them know well in advance
Remind them of the value you provide
Explain the reasoning behind the price increase and stay steadfast
Ensure your team is aware of the price increase before announcing it to customers
Allow customers to reach out with further questions or concerns
Think about timing
Current year challenges
The current economic conditions are a perfect storm for many business owners. If you want to look more closely at your pricing strategy or to help build your confidence with articulating pricing with your customers, please reach out to your Business Studio team.