People want to buy your stuff, but where is that sweet spot of pricing. James talks a few different models.
Hi, I’m James. This is Whiteboard Wednesday and we’re gonna talk about pricing today because I guess you guys want to make money – I don’t know. So we’re going to look at three very simple-based models on how you can price your products and pricing strategies.
So let’s start with the most obvious one – cost based pricing – which is you taking your parts and materials and that cost that you have taken on, plus any labor and other expenses that go into the completion of a manufactured product – or distribution of the product – and that will come out with a specific total you’re charging to your customers.
With competition you’re now looking at the field. What does a competitor, brand A, how much do they charge for their distribution? For their manufacturing? Or even just similar products that you might be competing up against. What do they charge? What does the market look like? What are the trends? With a competition-based model, you’re more worried about making sure that any customers that might be on the fence with brand A, B, C – whoever your competitors are – you’re trying to lure away some other customers from them, at the same time as staying competitive pricewise.
And then there’s customer value. This is building yourself up as a more premium provider; where you’re taking your product and really making sure it is of the quality, and letting people know that is the case, and then ensuring really great customer service so that people are not just buying a product; they are buying your high end product – even if it’s something simple. They know that they are going to get quality, and they know that they are going to be taken care of very well.
So, in dealing with all of these different prices, there’s not just one way to do it because if you simply do it at your cost, you’re not looking into competition and what others are charging. Maybe you’re not charging enough. Maybe, in fact, you’re going about the wrong process and in the end – because of other expenses – you’re charging too much, and it’s hurting your competition.
Or if you’re only focused on competition, you might find yourself ending up in a price war where you’re trying to be the lowest bidder and you’re losing sight of what your costs are and also your value.
And then again with customer value, you might be so focused on building out a big name and quality product for something that people aren’t necessarily looking for a quality product in; they just want bare-bones, basic, give it to me at a good price, at a fast rate, and I’m yours.
So why talk about these tiers of pricing? What can you do about it? Well, you need to be constantly keeping an eye out for your market trends, for how much your products are going out – if there’s any seasonal changes. You need to be checking the quality; how much of the product is being scrapped, or being returned, or if there’s any kind of customer service problems? If we can pull in the aspects of the best parts of these models, we can create a model that will better lend itself toward our products, toward our goods, and toward our distribution model.
So, if you are wanting to make sure that you are staying on top of your pricing, make sure that you are looking for these elements as you do so; and that once your company figures out what it is strategically trying to accomplish with pricing, it makes that very clear – to its employees, to its customers – so that there’s no confusion if you need to make different tiers of pricing relative to your customers and how much they purchase, and at what volumes, set those guidelines in place so there’s no guessing – because no customer likes to guess what you may be charging this month, this week.
Make use of these models. Incorporate them into your business and then monitor it, track it, and your company will thank you for it.
That’s this Whiteboard Wednesday, and I hope your pricing brings in lots of money.