Your brand is your promise to your customers. It’s what they are expecting from you when buying your goods or services. Pricing is just as important to brand equity as other differentiators, as one function of a price is that it conveys a quality message and therefore, can influence the conceptual place your brand takes in the target consumer’s mind.
What should the next price be? for a new product about to be launched? or an existing service where one wants to increase the price for any number of reasons? The facts are that in 88% of all cases the price setting process inside a company is largely based on guesswork and gut feeling rather than science. Or simply based on the previous price.
Communicating a price effectively is as important, if not more, as setting your company´s overall pricing strategy. It is an activity that should support you´re chosen pricing strategy, as this is essential to how much profit a company makes.
Businesses need to have some sort of guidance on how to communicate price to their clients, customers and even to their own partners and employees on a frequent basis. Knowing how to communicate your set price is as invaluable as setting the price for your product or service. Understanding buyer psychology is important when communicating a price. Price tends to be communicated poorly because businesses understand customers' desire for clarity and certainty as a way of demanding a low price for a particular product or service. However, since price is one of the components of value, it is important to communicate this effectively, as if customers believe they’re getting value for money, they will remain loyal despite price increases.
Here are seven tips for businesses so that they can improve their price communication methods.
Most people working in the pricing department is aware that pricing is a very powerful tool. Yet still, when engaging with other departments or discussing the overall strategy of the company, price improvements are sometimes ignored, or at least its full value is not appreciated.
We are excited to announce three upcoming webinars in June:
- June 5th: Pricing Right Made Easy - Optimizing prices with research: learn about how to use price research when setting prices, including using different research methods. See how segmentation along customers' willingness-to-pay can drive superior profits..
- June 12th: Value-Based Pricing foundation done right: Conjoint Analysis: Build a solid foundation for your value-based pricing strategy by implementing regular price research using conjoint analysis. Understand value-drivers and differences in willingness-to-pay.
- June 19th: Increasing prices more efficiently with research: price increases are sometimes difficult to implement. In this webinar we look at how you can become more efficient and achieve a higher proportion of the price increase potential through price research.
You can learn more about each by clicking on the links and signing up. Once the webinars are live you will receive an email with a personal link to watch the streaming video, at your time and convenience.
Willingness-to-Pay evolves over time
Most products and services experience a development in willingness-to-pay (WtP) over time.
Are your prices based on costs? Or a process of adding X% on last year's price? Or do you price based on what the nearest competitor is charging? Well, then of course you are in need of upgrading your overall pricing approach to value-based pricing, where prices are set based on the value you create. Often the value-based pricing strategy is supported by data and research about your customers willingness-to-pay. If you know what a customer is willing to pay, and what features she values, then value creation and value capture is much more accurate.
We all know the feeling: what matters to us when buying something is not necessarily the same as what our partners, friends, colleagues or even total strangers emphasize when looking for the same product. Customers and consumers are not all alike. What value we get from a product is unique to us. While this is old wisdom, we still see that many businesses still take the same price across all customers.
If someone is willing to pay more for a product or service, because she gets more value out of than the other person, then why not find a way to charge such a higher price? It is true that in some countries, price discrimination where you charge different prices to different customers for the exact same product is illegal. But charging different prices for products that are also differentiated according to the value they bring, is always legal. If a (slightly) different delivery of product results in increased value and therefore willingness-to-pay, then go for it. After all, it is better if some customers pay $50 and others $70, than all paying $50.
The approach to achieve higher and more accurate pricing against what individuals are willing to pay is focused on segmentation. Customer segmentation and sometimes product segmentation.
Take an example from the chart below. In this case a software company was selling a software package at $199 to all their clients. Through segmentation they were able to identify that they had several customer segments, for whom different features mattered: some would really only care about getting a good and low price (the "Price Segment" below) and others would focus on being able to customize the software extensively (the "Customizer" segment in the chart).
The chart shows two willingness-to-pay curves collected by using PriceBeam's research solution to ask questions about willingness-to-pay by segment. As you can see, the outcome was that the Price Segment customers have an optimal price point at $199. But the Customizer Segment customers are actually willing to pay a considerably higher price on average, fully $499.
So what the software company did in this case, was to create two versions of the software. One targeting the Price Segment customers, with a certain set of base features and the all-important low(ish) price of $199. A different version had a number of customization features enabled and was then sold at $499. The outcome: where all sale before was at $199, now a part was still sold at $199 (but at a reduced feature set) and the rest sold at $499, resulting in a higher overall revenue and profitability.
PriceBeam's price research solution can deliver insights like the ones above in a very short time frame and will typically deliver ROIs in thousands of percent in just the first weeks/months. Get in touch or sign up for a free trial on our website.