6.02 – Considering Your Pricing Strategies
Pricing may seem straightforward, but it is one of the most complex aspects of marketing. Establishing what customers are willing to pay for your category and your brand requires developing sound pricing strategies and tactics.
You may have noticed that some stores end prices with $0.99, others with $0.98, and so on. These choices are not random. Research shows that these pricing strategies, compared to whole dollar amounts like $10.00, can increase sales. It’s an important detail to consider.
Is your best strategy to set a low price to grow revenue quickly or to raise prices for higher profits? How do you apply discounts and promotions without diminishing your overall pricing and brand value? This lesson provides insights into the role of pricing for long-term growth and profitability.
Pricing Opportunities and Obstacles
It’s easy to assume that the lowest-priced product gets the most sales. However, being the low-price leader can be detrimental to long-term success. Pricing strategies present opportunities to attract new sales and boost profits as well as obstacles that can spark short-lived sales but impede profits over time.
Your pricing goal should be to see how much you can sell your product for, not how little. If you start as the low-price leader, moving away from that position can be challenging. Aggressive branding campaigns may be required to justify a new price, which can be expensive and reduce your profit margin.
If you want to raise your price and sell more, consider the following strategies:
- Building Brand Awareness: Better-known brands command premium prices. Consistent customer communications, a social media presence, and publicity campaigns drive visibility and pricing stability.
- Increasing Quality: Create new and improved versions of your product that give consumers a perceived reason to spend more.
- Enhancing Social Media Dialogue: Encourage happy customers to post about their experiences with your products on social media. Word-of-mouth marketing can lead to a 5 to 10 percent higher price over competing products.
- Using Prestige Pricing: Adding a more sophisticated look to your packaging and advertising can help you boost your price by 20 to 100 percent. All these strategies take time, resources, and money, so it’s essential to weigh the potential returns against the consequences.
Sometimes competitor pricing can force you to lower prices to the point where you barely make any profits. In such cases, consider changing your distribution model.
Avoiding the Dangers of Deep Discounting
Using deep discounting to entice prospects to try your product may be tempting, but it can lead to more perils than payoffs. A Business Insider survey of businesses that ran Groupon deals revealed some concerning facts:
- Nearly 80 percent of the businesses surveyed discounted their prices between 50 and 75 percent.
- Many of the businesses earned revenues as low as 25 percent of normal.
- Restaurants typically earning 6 to 8 percent profit margins saw margins drop to 3 percent, which doesn’t support long-term sustainability.
- More than 50 percent of the companies retained only a handful of Groupon customers. Some retained about 25 percent, and none retained 50 percent or higher.
- The majority say they won’t use Groupon again, and 50 percent wouldn’t recommend it to a friend.
Deep discounting can devalue your brand. Loyal customers who aren’t offered the same deals as new customers may feel unappreciated and lose interest. Additionally, you may be perceived as less prestigious or valuable, making it difficult to raise prices in the future.
Frequent discounts and sales can condition customers to wait for the next sale, doing more harm than good. Lowering prices is easier than raising them, but it can also lower interest in buying your product at a higher price later.
To make discounts effective, add appeal, value, and urgency:
- Make Discounts Worthwhile and Convenient: Coupons are appealing when discounts are significant. Consider offering digital and printed coupons to make them easy to use.
- Make Offers Reciprocal: Ask customers to opt in to your marketing list in return for a discount. Many consumers will comply for the right offer.
- Set Time Limits: Include expiration dates to create a sense of urgency.
By carefully considering your pricing strategies and avoiding the pitfalls of deep discounting, you can maintain your brand value while achieving long-term growth and profitability.
