One of the most difficult elements of marketing for most people is the art and science of pricing. There’s a lot of science to it—but it’s also an art. How do you price your goods and your services? Where do you start?
The Basic Formula: Creating Value
A lot of people know the basic formula: you take your cost of goods, or what it costs to deliver your service; your cost of sales and marketing, what it costs you to distribute your product or service, get it out there, and get awareness by putting advertising or marketing campaigns behind them; and then finally the margin you want to charge—how much profit you want to make on each sale. You can’t have a business without a profit! A high margin will really give you value.
But to get that high margin, you have to deliver value to your customers. And the way value is really created in the marketplace is through relevant differentiation:
- Relevance is about having a product or service that really fits someone’s needs and wants. It truly services them, delivering something that benefits them.
- Differentiation means you’re unique in your marketplace.
Relevant differentiation creates value; value creates margin. That’s the key to good pricing.
6 Pricing Possibilities
In your marketplace, there are six possibilities for making relevant and different pricing.
- Deliver the same thing for the same price. This is a no-go. You can’t just be part of the crowd—but unfortunately, so many things really are marketed just that way! There’s no reason to move from one competitor to another; same for same is no way to sell.
- Deliver the same thing for less. That’s a good proposition. But you have to know that you can deliver lower costs—producing with lower costs, distributing and marketing with lower costs. This strategy also tells consumers you’re going to make some sacrifices to deliver.
- Deliver the same thing for more. Well this one obviously won’t work! It’s a quick way to go out of business, charging too much and pricing yourself out of the market.
- Deliver more for less. This is similar to delivering the same for less. It’s a good proposition, but you have to be able to deliver, and be confident that you have a secret way to hold costs down so that you can continue to deliver on that value proposition.
- Deliver more for the same price. Now we’re getting to my favorites. It’s a great way to differentiate when you do more than your competition, and when you do it for the same price, it’s a better value proposition for your customer.
- Deliver more for more. This is my favorite. Give people more service, higher quality, a better experience—and charge more for it. Even though it costs more, people will be willing to pay more because it’s unique in the marketplace, and that’s the key to making high margins.
Published: August 6, 2013
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