Just like many other things in the business world, product pricing has strategies which have to be mastered.
How you price your product/service can be the difference between a profitable business and failure.
There are various pricing strategies known by the business genius. These strategies are tested and you can trust them to help you in your product/service pricing.
Before I share that with you, let me tell you these three truths:
- Your customers don`t know how much your product/service worth
As a matter of fact, human beings don`t have value meter on their heads. Don`t assume that people know how much they should by things, they don`t.
What actually happens is that, we usually make comparison between two things before we decide one is right or the other is wrong.
Let me give you an example here.
If today a telecom company wants to sell a sim card for #1,000 in Nigeria or KSh750 in Kenya, it will be obvious to everyone that such price is wrong.
Is that price wrong? Yes, it`s wrong, but it was right.
Remember MTN sold sim cards for #20,000 and above and people were joyfully rushing to buy them?
Now you`re getting something.
We don`t actually know how much we should buy things. The reason why we can decide that a thousand naira for sim card is too expensive is because we have other low prices to compare it with.
That leads us to the second point.
- Your position in the market determines the price of your product/service.
Why was MTN able to “dupe” us by selling ordinary sim for as high as #24,000 in the past?
Because they are the leading telecom company.
Being a leader in a market gives you an advantage to price your product higher than you can otherwise do.
Coming to compete with the market leader, Glo had to fight with price. If you are going into a saturated market, you may have to fight with price.
But you see, when you have nothing to fight with but price, you have already lost the battle.
That`s why I will share the next point with you…
- You can still charge good price, even if you`re not the market leader, if you have a good position in your market.
Just as I have said earlier, if you`re a “me-too” person running “we too” company, your only weapon to make sales is low price and when it comes to that, you may get to a point when the margin between your cost of production and profit is not sufficient to pay your staff.
That`s not business. That`s slavery.
What if you can be competing with other businesses in your market and still charge a moderate price?
Yes, you can do that.
You can concentrate on values. You can compete with the value of your product/service.
Do I mean a better product/service here?
Yes, but even more… a unique position in your market place.
By this I mean that you must differentiate yourself from your competitors. You must position yourself as being the leader in a particular segment, or an expert in something (which other competitors are not).
If you do this successfully, you can charge good price for your products or services… conveniently.
After discussing these three basic truths with you, let`s now go into the proven pricing tactics you can use to sell more of your products or services.
- Use Anchoring
Anchoring as a pricing strategy comes to live as a result of the psychological discovery about how human brains work.
If you come across something big (let`s say an elephant) first and immediately see a smaller object (now goat), that goat will look smaller than it is in the real sense.
If you want to buy something you don`t have the idea of its price and the seller asks you to pay $100 and just after negotiation he agrees that you should pay $40, you`re more likely to feel like you have gotten a good bargain than if the first price the seller offers is $50, isn`t it?
How can you use anchoring in your pricing?
If you`re selling varieties of items, make sure you place the higher price items before the lower price ones.
If you`re selling a suit for #50,000, the best way to sell it fast is to place it right after a suit of #200,000.
What happens is, when people first come across a suit of #200,000 and then see another for #50,000 that second price looks ridiculously cheaper than it would have been if there was never an anchor (the first, higher price)
- Nine is still powerful
Price ending in 9 is powerful, even till now. I know you must have been seeing prices of different items which end in 9. It was no mistake. It was a deliberate tactic of the smart marketers and business owners to price their goods and services for $49, #999 etc.
Instead of pricing your product for $50, why not $49?
Price ending in 9 will sell more of your products than price end in even numbers.
- Write it small
In human mind FIVE HUNDRED NAIRA is more than “five hundred naira”.
If your price is written big, your customers will (unconsciously) see it as expensive.
- Give two pricing options
As I have said earlier, we humans really don`t know what good price is. For us to know we`re buying at good price, we must compare two prices.
That`s the reason why some of us love to visit more than one sellers before we buy a particular item… we want to compare their prices.
Now you can help your customers to compare prices easily.
How can you do this? Give to prices for your product/service whenever it`s applicable.
You can offer your service and offer the premium of the same service (with additional value). If the price of what you`re selling is #2,000, premium version of it could be #5,000.
Why you may not sell much of the premium, more people will buy the normal version.
Why? Because it`s now easy to compare between two prices and see that one is better.
This is an example of how a monthly magazine (or any other business) that requires customers` subscription can do this;
Paper version of the magazine`s publication= #2,500/annum
Paper version + online version+ #4,000/annum
Since it`s now obvious that one price is better than another, it`s easier for your customers to compare the prices and go for the “cheaper” one (which is not actually cheap, but become so after comparison)
If applicable, create a premium version of your product/service. You may not sell more of that premium version, but you will sell more of your ordinary version.
- Don`t price everything the same
Human mind get confused easily. If you`re having boutique and most of your clothes go for the same price, your customers will not be able to compare prices… which is very important for them to know which is better than what.
They won`t just know which one to buy and they may just decide not to buy anyone. This is likely to happen because, to a large extent, most of us judge quality by price.
Tell me you buy a pair of shoes for #25,000 and I will assume it`s a good shoes, so by the time all your products go for the same price, people tend to be confused as per which is better than which.
Let`s talk about something similar to this…
- Don`t sell good thing too cheap
I have read about the experience of some people who increased the prices of their products, and unbelievably, the demand increased as well.
In my personal experience, I have sold a digital product and received great testimonies from 90% of people who bought it, but when I give it out for free, maybe 1% of people even like it.
Why? We have been programmed to judge things by their prices. “If it`s costly, it must be good”. That`s how we think.
How can this affect you as a business owner?
If you have a great product and decide to sell it at a cheap price, people may assume it`s a poor product.
Now you have a task of deciding between a moderate and cheap prices.
- Present it in bits
I was on a website few days ago. The author is selling a one month course for $29. Instead of him to write, “Buy this course for $29”, he writes, “for less than a dollar per day, you can get this course…..”
This helps people to see his product as “just a dollar per day” and not “$29”.
Can you present your offer in bits?
If people have to pay for your service for a whole year, you can reframe that price, help them to convert it to monthly payment and then present it as, “a year service for #100,000. That`s just #8300 per month”
It`s easier to think of #8,300 per month than #100,000 per annum.
#8,300 per month is “cheaper” to the brain than #100,000 per annum, isn`t it? Yet, they are both the same.
- Add “just” or “only”
I used it above. The word “just” “only” “a token” and other words that sound small make people to assume it`s actually small.
You wonder why it`s that way? We humans are not rational. We`re irrational. We don`t know as much as we usually want to think we do.
You have seen it in places. Marketers use the word “only #50” or “just $9” etc. to sell their products or services and it works.
Add “only” “just” etc. before your prices and sell more of whatever you`re selling.
That`s “pay what you want”. If you are selling digital things like music, eBooks etc., you can try this. Ask people to pay whatever they want, then suggest a minimum price.
What happens here is that, you have removed the first resistance of “I can`t afford it”.
Pay What You Want sounds so good that everybody will be open to your offer (after all, I can pay whatever I want to get this, isn`t that?)
If you intend to sell such product for #500, you can then suggest that buyers pay #300, #500 and above. Then add, “Just anything you can afford”.
What happens here is that you have suggested the lowest price you want (and trust me, most people will not go below that). Some people will pay above your actual price, some will pay below it but the joy of it all is that… you will sell more of your products.
- Beware of comma
Look at these two prices: #6,000 and #6000. Which of them look more expensive?
Look at these too; #5,000.00, #5,000 and #5000.
You get my message. If your price has the comma and that dot, it looks expensive than if the two are removed.
“But that`s not a correct way my math teacher taught me”!
Well, your math teacher taught you mathematics. I am teaching business.
I love you friend!