Trajan and Bry talk about how to price your product.
One of the most difficult decisions after developing a new product or services is how much to charge for it. Do you try to be the low price leader, like Walmart? Of do you aim for exclusiveness and high service, like Nordstrom? Two completely different business models, each with their own pros and cons.
A low price strategy often becomes a race to the bottom if many businesses in the same industry are all trying to beat each other’s prices. That’s not good for anyone and often erodes profits for everyone.
In the video below, international photographer, Bry Cox and I, discuss different pricing methods and how he chose the pricing for his business. Bry makes the case for having higher prices and fewer customers and cites a couple of businesses that actually raised their prices and made much more money. One, in fact, was nearly going out of business until they raised their prices.
Perceived value and discounting
Pricing is part of branding. How prices are presented can affect your brand perception. Look at the difference in perceived value between products priced at $99.99 and $3,000.
What kind of product price would end in $…99? A product trying to look inexpensive; trying to focus on price. Something that ends in “99” seems less expensive to the mind.
On the other hand, what kind of product would be priced in a round number with 2 decimal places, like $3,000.00? A luxury item, like a watch or handbag. Notice this next time you go shopping. The brands that are focused on the high-end luxury market often have prices with lots of zeroes, not lots of nines. They want their products to be aspirational, so they price them to look as expensive as possible.
Occasionally, a brand will mess up and mix the 2 and not get the effect they want. For example, a price like, “$199.00.” By adding the 2 extra zeroes, it actually looks more expensive, which is probably not the intention.
Testing your pricing
In the video, Will anyone buy your product?, we explore how to test your product pricing to know beforehand if anyone will buy it. There are a lot of way you can test pricing online, starting with A/B testing software that allows you to show different prices to different website visitors and compare sales data to see which option gives you the highest total revenue. If you’re unsure about what price to charge, do some A/B testing.
Second to that, listen to what your customers say. Counterintuitively, if everyone is happy and no one is complaining that your price is too high, then your price may be too low.
The Pareto Principle of Pricing
This is why Bry likes to use the Pareto Principle of Pricing (which may be a term he made up.) Essentially, he keeps his prices high enough so about 20% of people will say it’s too expensive. This works because he’s able to capture higher revenues from the remaining 80%. If it’s reversed and 80% of people complain his price is too high, then he knows he’s raised his prices too much.
The other benefit is he’s also able to focus on serving fewer clients, better. By having fewer clients, he actually makes more revenue and has more time to provide his clients with better service.
Overall, he hears from his clients. If you aren’t hearing anything from clients then you don’t know what they think or how they feel, which is a bad place for a company to be in. Encouraging constant feedback from customers is one of the best ways to continually improve and grow.
What pricing model did you choose for your business and why? Please share your experiences in the comments section below.
1:00 – How Bry decided where on the product continuum he wanted to be: Custom (expensive) vs. Mass produced
1:50 – Perceived value and discounting
2:20 – How having a high price affected his brand
2:45 – Why getting pricing complaints is good
3:05 – The Pareto Principle for Pricing
4:30 – How a car wash saved his business by raising prices!
8:30 – Is your pricing reflective of your target market?