Getting your pricing strategy right
This can be an extremely divisive and complex subject but your choice of pricing strategy has wide-ranging implications and is central to your success as a business.
Marketing is a fair exchange of value. I have something you want, you have something I want which in simple terms means that you are prepared to pay me to solve your problems, whether that’s a product or service, and in order to conclude a transaction, we both have to agree that the cost of the exchange is fair – that the solution is worth the price I am asking.
The assumption from this is that pricing strategy needs to be customer driven and defined by the benefit the solution delivers not the cost it takes to create and deliver the product or service. This where the main conflict comes from as accountants often expect pricing to be bottom up.
Based on your estimate of the size of the potential, how many customers do you think you can get? Are you pricing for high margin, low volume business or for the mass market? Can you maintain the risks of either extreme? Learn more here
Your business needs
Pricing will also be affected by your business needs and exit strategy. Do you intend to grow organically or through funding? What are the mechanics of valuation in your industry?
Product life cycle
If you are building a Go to market plan, chances are you’re just launching a new product or service so driving awareness and customer volume may decide the pricing strategy, whereas a more stable product might let you follow a premium pricing model.
The value that the product delivers
No matter how much the product cost to develop or deliver if it costs more than the benefit it gives, no one is going to buy. Would you pay €100 to save €50?
Transactional vs relational approach
The type of product or service you provide will often lead itself to either a transactional sale or the building of a long term relationship and this will affect how you price plus the level of the pricing that makes sense.
Don’t forget though, that how the customer buys will affect what sort of pricing mechanism makes sense for them, as will the length of the benefit you deliver
The complexity fo the product and the need to promote trial behaviour can also have an effect. Do you want to use introductory discounts or freemium products as part of your pricing model?
If you have a range of products or the potential to offer different levels of service, should you consider that one product could be a loss leader letting you upsell to higher value versions or cross-sell adjacent products and services?