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Successful Pricing Strategies for your Business

Quick Notes - Successful Pricing Stategies:
  • Successful pricing strategies require research of your competitors
  • Stay within the 40% pricing zone of your competitors.

Have you ever wondered how a particular product was priced? Have you ever considered the product’s sales strategies? Do you really require extensive sales training in order to have a successful pricing strategy? This article will assist you in preparing successful pricing strategies with only an understanding of basic sales skills!

How to Make a Successful Pricing Strategy

Have you ever heard a friend or colleague say they could probably sell ice to an Eskimo? Ironically, they probably could. Successful salespeople have a knack for understanding their customer, listening to their needs, and preparing a sales strategy around them. Selling a product is not all about understanding your customer though; it also takes careful planning to design a successful pricing strategy that is appetizing to your target market.

Pricing Strategy Research- The 20% Rule

No one will purchase the product or service you want to sell if you’re much higher than your competition or much lower than your competition. You need to obviously cover your production costs, but you need to be mindful of the amount of money your customers will want to pay. If you price your product or service much higher than your competition, than your customers will simply choose the cheaper alternative. However, if you’re too cheap in your pricing you will have customers questioning the quality of your product. It is highly recommended that you do not exceed 20%, or undercut 20% of your competitors’ price point. The process by which you research your competitors’ price points is called your pricing strategy research; or in broader terms, your overall sales strategy planning. Pricing will be a component of your strategic sales plan, which is an extensive part of your business plan. You might be asking yourself, “But my product is far superior to that of my competitors!” You may very well be correct, but you will find greater success staying within 20% of your competitor’s price regardless. We’ll call this 40% ‘pricing zone’ the “preferred pricing range”. Only in rare circumstances would you want to be outside of this range. Successful sales strategies will also make note or compare the actual products with their own to justify the pricing differential.

Volume vs Margin

A popular misconception is that you have to have a high margin in order to make a lot of net profit. Margin is the gap between the cost of completing or producing a product or service, and the amount you are selling it for to the consumers. The best sales tip to retain from this entire article is to focus on volume as opposed to margin. Volume is the amount of sales you are doing in any given time frame. Selling 1000 products at $1 is better than selling 200 products at $4. Not only are you retaining more profit in total sales, you are also dispersing more of your products to more consumers. This is a tactical advantage for any entrepreneur or successful salesperson because you’re getting your product into the hands of more consumers. Generally speaking, as your price decreases you will have more potential buyers. Your product or service becomes more accessible. Conversely, as your price increases you will have less potential buyers. Your product or service becomes less accessible. How then, do we determine what an adequate price is? In conjunction with your successful sales strategy research, you should be within the 40% preferred pricing range, and you should generally price yourself lower than competitors. This will allow you to be ‘more accessible’ than other higher priced products, and your potential buyer pool increases. Your volume should be considerably higher than if you were priced higher.

Micropayments, and Why They Work!

This is probably the most underutilized sales pricing strategy in the modern world. Micropayments are essentially very low-margin sales in an effort to maximize volume. Micropayments can be low in total dollar value, or they can be low in total margin per unit. You commonly see micropayments utilized through television networks or popular TV channels. They ask you to send a text message or call a specific number and you can potentially win hundreds of dollars in exchange for a quick $0.50 charge. These types of schemes attract so many people because the potential return on investment (that is, the amount you can expect to earn in relation to the amount you spend) is very high. In the consumer’s mind, it’s only $0.50 – only a candy bar at your local convenience store. Believe it or not, your consumers will be more apt to paying you $5 through ten $0.50 payments over a period of time, than to strictly pay you $5 instantly. This is a distinct sales tip and sales strategy you should use to harness the most you can out of your product or service.

New vs Returning Customers

Frequently, new entrepreneurs ask whether they should use their time cultivating new customers or satisfying current customers. The answer is simple: Do both. There is a positive correlation between the amount of total new customers and the amount of satisfied current customers. As your satisfied customer base increases, it will snowball new customers your way without regard. However, if you focus solely on bringing in new customers, you will fail miserably in basic sales skills. Your returning customers will leave, and almost always fail to return. This is an unsuccessful sales strategy. In contrast, if you only focus on making your current customers happy, your sales targets will never be met because you’ve not put any time into growing the customer base. Customers age, grow out of your product, and ultimately tire of the same old thing. It is important you sustain new customer growth, and satisfy existing customers.

Putting the Pieces Together

It is important that as a business owner, you price your product or service within the preferred pricing range, focus on volume instead of margin, try to utilize micropayments to your advantage, and focus on both new and existing customers. By doing this, and by having a quality product or service, this author can promise you a successful pricing strategy for your business plan. This will show itself in new found sales milestones, and higher net profits.