Setting the right price may seem like walking a tightrope while juggling flaming torches. If the price is too high, you'll watch potential customers vanish faster than free samples at a grocery store. Go too low, and you might find yourself sprinting a race to the bottom, with your profits as the finish line.
For many first time entrepreneurs, pricing strategy often boils down to a game of "follow the leader"—whether that's the MSRP (Manufacturer's Suggested Retail Price) or the tried-and-true cost-plus method. But those are not the only options.
Here we’ll cover how to set competitive prices, psychological pricing tactics, and the importance of pricing transparency.
1. Methods for Setting Competitive Prices
Cost-plus Pricing: This traditional method involves calculating the total cost of producing a product and adding a markup percentage to determine the selling price. While straightforward, it may not always reflect market conditions or perceived value. The Vitals Volume Discounts App can be particularly useful here, allowing businesses to offer tiered discounts based on purchase quantity while still maintaining profitability.
Value-based Pricing: Your customers aren't losing sleep over your production costs. They're focused on value, and that's as subjective as opinions on pineapple on pizza. In this pricing strategy, you can focus on the perceived value of a product. It allows for higher profit margins when a product offers unique benefits or solves specific customer pain points or has high brand value. For example - more than one-third (34%) of the population is willing to pay a 25% premium on average for sustainable products or services.
H&M sustainable clothes, priced slightly higher than their regular clothes
Competitive Pricing: By analyzing competitors' prices, you can position their products strategically within the market. This method can involve pricing slightly below, at par with, or above competitors depending on brand positioning and target audience. The Vitals Pre-Orders App can support this strategy by allowing businesses to gauge demand and adjust pricing for new products based on market response.
Bundle Pricing: A multiple pricing strategy, allows you to sell more than one product for a single price. The Vitals Product Bundles App is specifically designed to implement this strategy effectively, allowing businesses to create and manage attractive product combinations easily. This may help in increasing sales volume, but it can also run the risk of reducing profits if not done properly. For example: this brand was able to achieve a 3x ROAS through product bundling.
2. Pricing Tactics
Charm Pricing:In Priceless: The Myth of Fair Value (and How to Take Advantage of It), author William Poundstone writes that charm prices increase sales on average by 24% when compared to rounded numbers. This tactic involves setting prices just below a round number (e.g., $9.99 instead of $10.00). It creates the illusion of a lower price point and can significantly impact consumer perception and purchasing decisions.
Buy One Get One: Offering multiple products together at a single price can increase perceived value and encourage larger purchases. With the Vitals BOGO (Buy One, Get One) App, you can offer deals that seem too good to pass up, leveraging the psychological impact of perceived savings.
Popular strategy used by Dominos to push sales numbers
Anchoring: By presenting a higher-priced option first, businesses can influence customers' perception of value, making subsequent lower-priced options seem more attractive. The Vitals Gifts App can enhance this tactic by offering a desirable gift with higher-priced items, further justifying the anchor price and encouraging customers to opt for premium options.
Watch this video to find out how to make a win-win situation for you and your customer.
Importance of Pricing Transparency
In our hyper-connected world, everybody knows everything. With fake news, data breaches, and dishonest behaviors, consumers are shopping with skepticism and distrust. To fight this uphill battle of customers trusting you, relationships and transparency are becoming the building foundation of commerce and business.
In fact, 86% of American customers believe transparency from businesses is more important than ever, while 73% of consumers are willing to pay more for products that guarantee total transparency.
In such a scenario you need to ensure that all your customers have access to accurate and comprehensive pricing details, including the base price, any additional fees or charges, and any applicable discounts or promotions; so that they trust you and keep buying from you :)
