You’ve got a great product that your customers love, a growing reputation, and team members who are passionate about what they do — yet you’re struggling to grow. Why?
Most businesses in this position would knuckle down and work harder, confident that a breakthrough is just around the corner. And it might be. But what many of these businesses don’t realize is that that breakthrough could be made today (and with potentially a lot less effort).
So, what’s the secret?
It’s your pricing strategy.
Most businesses start by setting a price that they think is about right and then leaving it to see what happens. Normally, customers are happy to buy (because it’s a good product), and so the business assumes that the price is right. Once they’ve found something that “works,” businesses tend to stick with that price, only altering it as manufacturing costs go up.
This set-it-and-forget-it mentality leaves value on the table and restricts growth. Most businesses guilty of this strategy are setting their prices too low; they receive enough to continue running but not enough to grow.
The time to focus on your pricing is now: let’s get started.
Pricing As A Growth Strategy
Designing and executing a pricing driven growth strategy requires an “inside-out” approach. By starting with your company and your growth objectives, you can set out a sustainable strategy that delivers value to your customers without compromising your growth.
Step 1: Establish Your Goals
It appears obvious, but the first step is to look at your growth goals for your company. Where do you want your business to be in one year’s time? How about in five years?
Many companies forget what it means to build goals – stretch and attainable – that reflect the ambition and new reality for your company and market. Your pricing is a vital part of this growth story because it starts to identify the levers available, how hard you want to push these levers, and the impact these decisions will have in your company’s future state (e.g. can you become profitable?).
Step 2: What Do Your Customers Value?
Your customers purchase your products or services because they provide value. Perhaps your service saves them time or provides them with access to something they can’t get anywhere else. Whatever it is, you need to figure it out — because it’s this value (and its relationship to price) that decides whether they make a purchase decision or not.
Not sure why customers value your product? Ask them!
Step 3: Determining Worth
To price correctly, you need to put a number on the value you provide your customers. This value might change depending on which customers you look at — and this might have important implications for your sales and marketing strategy.
For example, say you provide an online service that saves users an average of four hours per month on a boring and monotonous task. How much is that worth? Executives might value that time at $250 per hour. Students, on the other hand, might value their time at a fraction of that. Understanding what customer value and what drives that value is critical to determining worth — while not giving up on potential monetary opportunities.
Step 4: Evaluate Your Market
The value your competitors offer (and the prices they offer it at) may shed light on which pricing strategy will work best for you. Some industries are very “flat” with little difference in pricing between firms, while in others there is a huge difference (like the motor industry).
Your task is to consider how your value measures up against your competitors and decide what that means for how much your customers are willing to pay.
Step 5: Align Pricing and Goals
Your aim is to hit the sweet spot — a price that reflects the value your customers receive and that they’re willing to pay, and that allows your company to hit its growth goals.
Sometimes this isn’t possible, in which case you either need to revise your growth goals, improve the value you provide (and potentially increase the amount customers are willing to pay) or both. What is important is not to put pricing or growth into silos, but see where pricing can enhance goal achievement.
Step 6: Test Your Price Design
Remember when we mentioned the “set-it-and-forget-it” mentality? You’re not going to make that mistake again.
Test your pricing strategy by running trials or conduct pricing research. This can be easily achieved online by driving traffic to a sales page and then splitting the traffic so that viewers receive the same sales message but different prices. Often, the most profitable price will result from fewer sales at a higher value — but you won’t know unless you test.
Step 7: Launch, Measure, Refine, Repeat
Once you’ve completed testing, launch your pricing strategy and measure its progress. Conduct regular reviews of your pricing strategy, taking into account customer opinion, sales progress and your growth goals. This is not the responsibility of a single team member, but a core leadership topic — pricing is a reflection of the value created for customers. In addition to refining your price design, you will enable your sales and marketing teams to better design ways to defend the pricing with stronger communication, messaging and processes.
Used correctly, your pricing strategy is an incredible tool for supporting and enabling the growth of your company — but you have to have a plan. By being clear about your goals and values, evaluating your market, and implementing thorough trials and testing, you can find the ideal price, keep your customers happy and grow your business.
Interested in learning more?
If you or your team is interested in having a hosted session on your pricing strategy and monetization model, please contact us at:email@example.com