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 – they’re 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, 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)
Having a pricing strategy is 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.
Reason #1 for a solid Pricing Strategy
[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 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 of and to pay our employees? The first thing is really important is kind of proving the concept of your business model. When I do this work with clients is we often determine we need adjustments are needed.
Reason #2 for a solid Pricing Strategy
[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 (check out these episodes about brand and pricing – with Pete Canalichio and Melissa Buch). 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.
The 3rd Reason You Need a Pricing Strategy
00:05:38] 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] 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.
The 4th Reason a Pricing Strategy Helps
[00:07:02] 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] 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 pricing, then sure you’re doing things in aligned way. If you’re the owner, and you have somebody in your team working on pricing, you want to give them guidance. Guidelines on how you want pricing to be done in your business.
Reason # 5 a Pricing Strategy Helps Your Business
[00:08:39] The fifth 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 you’ll get. And that they’ll pay that price. You’re gonna make assumptions and base your strategy on that. But you may find out 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 but at least on a regular basis. Every 6-12 months you’re going to want to be looking at that. 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 are the same things that you’re going to need to monitor to know when you need to change prices. It’s all connected.