Remember the first time you look for an item you want to buy?
You search for it online, you click the item & check out the high-quality pictures (zoom in and out!), then you read multiple customer reviews from people who’ve actually bought the item. Finally, after you’ve decided on the color and size you’d like, you take a deep breath, count your lucky stars and let your eyes focus on the price tag right next to the product name and picture.
Depending on what price you see, you either hit the close button (only to come back again tomorrow) or you click on “add to cart” immediately to finalize your purchase.
This example just goes to show how important the effect of pricing is to your customer’s purchasing decisions. Various psychology-based pricing tactics and pricing tips & tricks in several articles online add conviction to this.
In fact, 60% of online shoppers worldwide even name pricing as the most important factor affecting online purchasing decisions!
The way you price your products affects the profit of your product and subsequently the growth of your company over time.
How can you do this? Here are 4 ways in which you can implement pricing management strategies that can help grow your company this 2019:
1. Double your prices.
As long as you don’t lose more than 50% of sales, you’re coming out ahead, mathematically. Imagine, you get higher gross margin since you’re selling for a higher price.
Also, you’re selling enough products that doubling their prices increases your revenue without necessarily increasing the volume, too.
Not yet convinced why you should do this? Customers usually associate higher price = more value for their money. Just check out how Apple prices their products: according to a recent study, it costs Apple $247.51 to create an iPhone, yet they sell it for over $1,000.
Higher revenue and less volume of transactions translates to less overhead expenses. You get to enjoy the benefits of increased profit with decreased costs – how sweet is this? Doing this enables you to get that extra 1% or 5% that’ll help you increase your bottom line profit.
2. Increase your prices by 10%
Compare your conversion and profit every time you change your pricing.
For example, increasing your prices by 10% this February 2019 and comparing its profit versus your profit last February 2018 can help you figure out which of your products have more price sensitivity compared to others – perhaps you’re better off increasing the prices of your more “premium” or “exclusive” products?
The only way you’ll know if this is effective is by experimentation with product pricing according to the historical performance of your sales. Start with one product or one category: focus on the 20% of your products that provide the most value for 80% of your target market. Once you prove that this strategy is effective in increasing conversion, go ahead and try the other product lines, too.
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3. List down your top 10 products with the highest conversion rates and find out the pricing strategies behind them.
Look at your sales history: which products have the highest conversion rates for an average of three to five years? This means we’re looking for products that have consistent performance and sustainable sales among the years.
Prioritize the top ten products and look into the pricing strategies you’ve adopted for each product. Find their similarities – have they performed well due to “power of 9” pricing, cost-based pricing, fragmented pricing, or bundle pricing? If you’re not sure which pricing strategy it specifically is, check out this helpful guide for your reference.
Once you’ve found out the pricing strategy of your best-performing products, use it in pricing your under-performing products and compare profits over the same selling period.
4. Compare your pricing strategy with your competitors and price according to the concept of “exclusivity”
Instead of offering your product at a lower price than your competitors, premium pricing allows you to offer your product at a higher price than expected because exclusive products naturally cost more.
Just think of premium brands like Apple Macbooks or Rolex watches – if someone offered the same brands at a lower price, you’d undoubtedly think something has to be wrong about the products they’re selling, right?
You can take advantage of premium pricing by offering functional value (it does what it says it does) and psychological value (not everyone can have access to this product so you’re pretty special if you do).
It’s all about product positioning in relation to value perception.
How do you market your premium products? What branding message do you want to tell your audience so you can tug at their heartstrings and invoke emotions that make them want to buy your exclusive products at higher prices? What makes your brand and your products high-quality and premium that your customers would willingly want to be associated with them?
Implementing these product pricing strategies can help you increase your bottom line profit and boost your company’s growth this 2019. Have you incorporated these tactics into your product’s marketing and development?