Pricing is integral to every business and is often a deciding factor in overall success. After all, it’s the cost of a product or service that will ultimately be the deciding factor in the sale. Whilst the importance of pricing is clear to see, some companies treat it as an afterthought and this can be dangerous. It’s only with an informed pricing strategy, that adapts to changing circumstances, that businesses can be full prepared. Fortunately, it’s never too late to implement a pricing strategy and therefore attempt to boost sales.
Customers
Before even contemplating a pricing strategy, identifying your customer is integral. Understanding the customer base doesn’t just help with pricing but with so many other aspects of the business, from product development, marketing and customer service. However, when it comes to pricing, understanding the consumer is vital as they make the decision to buy, or not buy. Some customers value quality and branding, whilst others are looking for a cost-effective solution. Customer profiling will allow you to identify the type of consumer that your business is attracting and this can provide invaluable insight, informing the pricing strategy that you choose.
Higher or Lower?
One of the main pricing decisions that a business will make is whether to go higher or lower. It’s easy to assume that lower prices are always better, as they attract more customers and undercut competition. However, a lower price tag can affect the perception of a product and the business selling that product. Lower prices may attract some consumers but also repel others, who will perceive this pricing as a reflection on quality. Conversely, higher pricing may be favourable with those looking for a luxury market or premium products but you’re also going to alienate many other customers. The decision to go higher or lower will depend on the business, the products and services that you offer and the type of customers that you want.
Psychology
As many of us already know, businesses employ a variety of psychological techniques in order to attract customers and boost sales and pricing is no different. One of the more well-known techniques is to reduce prices by a small amount in order to make them appear more attractive, for example £10 to £9.99. The cost has only reduced by a penny but customers perceive a more substantial drop due to the change in the first number.
Another psychological trick that some businesses employ is price anchoring. This involves the customer perceiving a higher price as reasonable, in comparison with a much higher price. For example, an expensive menu items looking favourable in comparison with a much more expensive dish.
Competition
There are many factors which affect pricing but often they’re internal and therefore controllable. However, competition can have a huge affect on sales and can be difficult to combat. If a competitor suddenly reduces their prices, they are undercutting your business and will therefore siphon off customers. The urge may be to reduce your own prices in retaliation but this can quickly escalate in to a price war. Continually lowering prices is best suited to over saturated markets in which small changes can have large effects. However, in more niche areas, it may be better to focus on the value that you’re adding to your products. Whether that’s uniqueness, ethical considerations, customer service or brand recognition.
Pricing strategies are one of many issues to consider when running a business. Financial matters can be complicated and overwhelming, particularly taxes. The team at U-Deliver offer expert services and advice, ensuring that taxations isn’t yet another worry. Don’t hesitate to contact U-Deliver if you’d like to find out more.
