Begin with a solid pricing strategy.
When people ask me where do I start it’s usually with two things a good understanding of your customer (and what they value) and a solid pricing strategy. My experience show most businesses are operating with an ad hoc strategy at best. Meaning they are just simply winging it. That’s just not good enough if you’re looking to build sustainable profit and be on top of the biggest profit lever in your business.
Your Pricing Strategy is like a roadmap, that’s showing you how to steer your pricing in order to reach your targets. Now you’ll see when you research it, there are strategies called skimming, economy, penetration etc. Yes these are pricing strategies, typically applied at a product or offer level. What I’m speaking about here is your overall strategy – i.e. how will you use pricing in the best way possible for you and your customers.
In this episode
I’ll share with you 5 reasons why you don’t want to be operating without a solid pricing strategy. We’ll also take a look at what this means for startups and young businesses.
Let’s go ahead and take a look at why you need a solid pricing strategy to boost your business. Watch the video above or listen to the podcast, click below.
Note: Time stamps are relevant to video and not the podcast audio.
0:43 Intro to the session
1:35 Prove your business model
2:32 Defining revenue streams
3:44 Startups & New Businesses
4:14 Alignment with your brand
5:26 Price setting
5:53 What you need
6:58 Ways of working
7:42 Best way to set prices
9:08 Helps you adjust and adapt
Favorite quotes from this episode:
“The first reason that you need a really good pricing strategy is to prove your business model. …Actual proof will come when you’re profitable and making money. But what we want to do before we get to that stage, or if we’re in a struggling stage, is we want to take a look at where we’re going to make money and can we make enough money?” Janene
“The way that you behave with your own prices actually influences customer’s perception of value.” Janene
“If you’re the owner, and maybe you have somebody in your team working on pricing, you want to be able to give them guidance or guidelines on how you want pricing to be done in your business. When you have that pricing strategy, then you have set out how you’re going to operate with prices in your business.” Janene
“Your pricing strategy is really two things. It’s a way to steer your business because you understand the commercial side or the financial side of your business, you understand your profit and how your decisions are going to affect that. And then on the other side, it’s a plan for how you’re going to implement. Well, let’s say first how you’re going to set and then how you’re going to implement and work with prices in your business.” Janene
Connect with Janene
Get started improving your business. Sometimes it’s difficult to know where to begin. I suggest you Download the the self assessment Pricing Scorecard. Get a view of what’s working and what’s not working when it comes to pricing in your business. Figure out where to start making improvements.
Get in touch with Janene. If you’ve got a question that needs answering, a challenge you’re facing or you have suggestions for future topics or guests, let me know. Contact Janene.
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(Note: this transcript has been edited based on the podcast)
[00:01:04] Today. We wanted to look at the five reasons that you really need a solid pricing strategy. Most of you who will watch this probably haven’t really thought about having a pricing strategy. You’ve thought about having prices and there is a difference.
[00:01:22] That’s what I want to get into today. Having a pricing strategy is actually going to answer a lot of the questions that you have around “how can I set my prices?” How do I know when my prices are properly set? How can I feel more confident sharing with customers, what I charge or answering questions around what I charge. A lot of the answers to these questions, you’re going to find in a pricing strategy when it’s done right. So let’s go ahead and take a look at what that is.
[00:01:54]The first reason that you need a really solid pricing strategy is to prove your business model. Now, this is like a first stage proving, right? Actual proof will come when you’re profitable and making money and running your business and serving your customers. But what we want to do before we get to that stage, or if we’re in a struggling stage is we want to take a look at where we’re going to make money and can we make enough money?
[00:02:22] Can we do the work? Can we produce enough product and sell enough in order to earn the money that we want to earn or need to earn for our business and to live off or to pay our employees? The first thing is really important is kind of proving the concept of your business model. What happens often when I do this work with clients is we find out that we need to make adjustments and that’s going to come back in later on.
[00:02:50] First, I want to talk about revenue streams. Revenue streams and pricing, and a successful business are very much connected. If you don’t have revenue streams, you’re not going to earn money and therefore no chance of earning profit. What we do when we build a pricing strategy is we think about what revenue streams do I have.
[00:03:13] And if I price things this way what does it mean in terms of how much money I can make? Of course, we also look at things like the customer. What’s your offer is your customer profit, the marketplace. We look at these things, but we’re really in this first step trying to define does this business in the model.
[00:03:32] And I’ll give you a very personal example. When I first looked at starting my own business, I had a very clear vision in my head of how I wanted to work with clients. And then when I sat down and did the dirty M word, the math, I realized that actually I was missing something in my business model in order to make things go more smoothly.
[00:03:53] I had to then of course adjust what I was doing. This is what a pricing strategy can really make very clear for you. If you’re a startup or a new business, a lot of times you might be tempted to leave pricing until the very end just before you go to market where in fact, in order to get funding in order to write a business plan, you have to think about pricing much earlier on. Your strategy is one way that you can do that. And it will give you so much more clarity about the rest of your business. It will help you understand profitability.
[00:04:28]Second reason that you need a really solid pricing strategy is you want to make sure that your pricing is aligned with your brand. There’s a very strong connection between brand perception, price perception, and willingness to pay. If you are trying to position yourself as a good value for money brand, not an economy brand, not a low price leader, but good money for value. And yet your pricing, you’ve positioned yourself below the rest of the market.
[00:05:03] Then your pricing strategy on that product level and your brand are actually going to clash and be at odds with each other. And customers might be thinking, well, this isn’t really good value for money. It’s kind of too cheap. And it makes me wonder about the value that I’m going to get. This is what you don’t want.
[00:05:23]Your pricing strategy will help you ensure that your prices are aligned with your brand. Your brand perception, value perception, and therefore willingness to pay are all working with each other rather than against each other.
00:05:38] All right number three. Your pricing strategy will tell you what you need to know and how to set your prices. What do I mean by this? When you set a pricing strategy, you need certain pieces of information. Those, by coincidence or not, are actually the same, essentially the same information that you need in order to set prices. Once you go through and determine or design your pricing strategy, you have all the information you need in order to go ahead and set those prices.
[00:06:12] You’ll understand where your prices are coming from. And you’ll also understand what you need. What do I mean by that? Well, do I need. A price. Do I need a price list? For different customer groups? Do I need prices for different channels? And do I need discounts? Do I need rebates?
[00:06:33] A lot of these things we say we have prices. We have price lists and pricing frameworks. We have discount and rebate systems and depending on your business, you may need just a price, or you may need only a price list or a price list with some other things. When you build your pricing strategy, then you can determine what it is you actually need to do next. That is going to be very important for many of your businesses out there.
[00:07:02] The fourth reason that you need a really solid pricing strategy: it’s going to tell you your ways of working. And how you’re going to execute pricing. Now, this is something that most people don’t really think about, but when I pointed out it’s so obvious. The way that you behave with your own prices actually influences customer’s perception of value.
[00:07:29] So, and we see this all the time. When you see a business who’s discounting and discounting and discounting and discounting, it gives you a certain perception of how they behave. How they want to be positioned and how confident they feel about their prices. Right? So it’s very important that you have a clear understanding of how you want to operate with your prices. And that you know how you’re going to implement them in the marketplace.
[00:07:57] If you have a company where more than one person is in charge of doing pricing, then you want to make sure that you’re doing things in aligned way. If you’re the owner, and maybe you have somebody in your team working on pricing, you want to be able to give them guidance or guidelines on how you want pricing to be done in your business.
[00:08:17]When you have that pricing strategy, then you have set out how you’re going to operate with prices in your business. Again, this is really key to long-term sustainable profitability and the bigger your company, the trickier that can get, because you have more people involved in that thought process or in executing those prices.
[00:08:39] The fifth and last reason you need a very strong pricing strategy has to do with adjusting and steering your business. The thing with the pricing strategy is it’s like most strategies is rooted in assumptions, right? You’re going to make assumptions that these are the kind of customers are going to get and the prices they’ll pay
These are the number of customers I can have. You’re gonna make assumptions and base your strategy on that. But you may find out that you sell more or that you can sell more, but at a slightly lower price.
[00:09:17]You need to adjust your strategy and what you’re doing in the market in real time, as we say, right? Maybe it’s not on a daily basis for most of the businesses of this time, but at least on a regular basis every six months, every 12 months or so, you’re going to want to be looking at that and a pricing strategy will help you steer your business.
[00:09:42] It’ll also help you understand how to adapt and adjust prices. You’ll understand what information you need to have in order to set your prices, which is the same things that you’re going to need to monitor to know when you need to change prices. It’s all connected.
[00:10:07]Your pricing strategy is really two things. It’s a way to steer your business because you understand the commercial side or the financial side of your business, you understand your profit and how your decisions are going to affect that. And then on the other side, it’s a plan for how you’re going to implement. Well, let’s say first how you’re going to set and then how you’re going to implement and work with prices in your business.
Wrapping It Up
[00:10:35] That’s what I wanted to share with you today. Your pricing strategy is really the first step getting pricing, right? And once you go through that process, you have so much more information and you feel more confident because you’re operating from a different place, a place of understanding rather than a place of sort of blindfold. I always kind of liken operating without a pricing strategy to playing the children’s game, pin the tail on the donkey. I don’t know if you played that when you were young, but I did. They put this poster of a donkey, a poor tailless one on the, on the wall.
[00:11:11] They blindfold, you give you a tail, they spin you around and then you’re supposed to bend the tail on the donkey. But of course you’re dizzy. You’re blind and you have no idea what direction you’re going and that’s what operating your business without a pricing strategy is like it’s blind, aimless and confused, and that is not going to get you where you want to go in the shortest amount of time possible.