When it comes to pricing your products and services, beware of being in the middle when thinking about your arketing strategy. The middle class is shrinking. Companies that serve the middle class, like Darden, JC Penny, Men’s Warehouse, and many more, all suffer because of it.
There are only two ways to structure your price and position. One is to dive down to the bottom and be, or be perceived as, the cheapest option available. If you can handle huge volumes and can achieve a sustainable price advantage, this works. For most, though it doesn’t. Who wants to be on the bottom?
The other option is to move up, sell possibly less to fewer customers, clients, patients or members but do so at substantially higher prices – and more importantly, higher margins, to better customers. Now that’s a pricing strategy I love helping clients put into place.
My motto is “Gross is for vanity, net is for sanity.” It’s very hard to make net being on the bottom. I just helped an accounting client double their prices despite everyone else in the area getting into discount wars. This accounting firm was now the most expensive in the area – and the practice has nearly doubled year-to-year and they’re opening additional offices. I also know of an e-commerce business, doing decent revenue, but constantly discounting, being driven by competition to bigger, more “loaded” offers at lower and lower prices. I refused to work with them because I knew they would run themselves out of business, and that they did. They’re are no longer around.
I am here to warn you, like a teacher standing in the front of the classroom waving the ruler to her students, DO NOT get caught in the middle.
How many pricing options do you have?
Most answer one.
That means you’re leaving money on the table.
Did you know:
No less than 5% - often to as high as 20% - of your customers will always opt to the “better” or premium option and/or ascend to higher price tiers because of who they are as much or more than because of the offer you make.
I learned this in my coffee and smoothie catering business. When I started I only had one package, but then realized that people would pay extra for additional things like alcohol service, additional time, decorations, etc – that were and still are really all profit straight to the bottom line. What they really wanted was a full-service done for you solution. Price was not the determining factor. I now offer 3 package options and 32% of my revenue and 87% of my profit come from the top tier package.
So where do you start?
Two very important things:
- Raise your prices by at least 20% now. I’d challenge you to double them. If you lose customers, so what? You’ll be more profitable with less work servicing those who REALLY want you and will pay handsomely for it.
- Create good, better and best options. Up to 20% of your customers are dying to buy the premium option. Remember it’s not about “what” they’re buying, it’s about “who” is buying. Get this right and price will never become an issue again
As part of your marketing strategy what are you going to do to rework your pricing strategy? Leave me a comment below.