Often we are asked how products should be priced – value for money, luxury, discount, seasonal sales, project-based, hourly rate or retainer? How you price your products and services gives a clear message to your customers and competitors. Here are some different options and pricing case studies.
Value for money
Ateco Automotive launched three Chinese utes into Australia this year under the ‘Great Wall’ value for money brand in a market with 52 existing brands. The company feels there are great opportunities to be had at the lower price point and believes that “… if the offer is compelling it’s not hard to get noticed.”
Ateco has sold 1,400 Great Wall vehicles since July and is predicting sales of 6,000 during 2010 with plans to sell 30,000 vehicles within five years.
In six months, the company has spent roughly $2 million on newspaper, online, radio and television ads – during the launch phase their expenditure will continue to be high while they maximise value for money and high volume sales.
Source: The Australian Financial Review, Monday 7 December 2009, p44.
Luxury
At the other end of the scale, luxury brands are trading in emotions. A high priced item creates a sense of prestige and belonging where performance and quality are important, but secondary to the perceived benefits of associating with the brand.
Pricing needs to be sensitive to that offered by competitors and ‘mark-downs’ may lose the perceived luxury value of the item or service.
Pricing image, scarcity and emotional appeal is a sensitive balancing act and finding the right price is not always about ‘what the market will bear’ in a market that has deep designer pockets and makes decisions based on perception and (sometimes?) appealing to others.
Discounting
Often used as a tactic to fight for market share. Think carefully about the people you are selling to and the image you are creating … has your accountant checked your numbers before you launch? Discounting can be great for bringing in new sales, but it can deter luxury buyers and create volume instead of profits.
Make sure the cost of the product or service covers its production. Or if you are using a discounted product to entice sales of other products in you suite, make sure they are bundled accordingly.
For example, Wal-Mart sells new, hard cover books well below the recommended retail price because they know that customers who buy books also buy a wide range of other products when they enter the store – very clever.
However when it comes to professional services, be careful as discounting can create the perception that prices were ‘loaded’ in the first place, services become devalued, trust can be eroded and future negotiations can become fraught with haggling.
Sales campaigns / promotions
Often retailers will have sales campaigns / promotions attached to specific milestones or times in the year, ie. making way for new models or clearing winter clothes. This gives a defined point in time and an obvious reason for reinstating the usual prices once the sale period has passed. Without a fixed point in time, customers come to expect a ‘sales culture’ of the brand and question the legitimacy of paying full price.
Remember to gather information before, during and after the sales process so you can make quick, informed decisions. Also, ensure that your sales people have strong product knowledge and customer service skills to maximise the resources and energy outlaid during the sales campaign.
Other pricing strategies
Apple prices new products high when they are first released to increase profits from customers who ‘must have’ the latest technology as soon as possible. This off-sets their high R&D costs. Other companies sell older products with newer ones to move them more quickly off the shelf. Products that are seasonal or have a short shelf-life become cheaper as their time runs out. Do any of these strategies / options apply to your brand?
Online pricing
Online selling is one of the many available distribution channels and ready access of goods has meant changed approaches when it comes to pricing. Some ‘e-tailers’ offer free products up front to try and win customers, but their relationship activities need to be extremely strong thereafter to keep the customer coming back for more – price ‘shopping’ and moving on to the next free offer is just a mouse click away.
Pricing can be more flexible in the online space with different products and price points offered to a wider range of customers as per their willingness to pay. Multiple versions of products can be created and products can be bundled before and during the point of sale. Remember to create relationship management processes similar to the offline world to maximise repeat purchases and loyalty.
Selling services
Many of the traditional services are moving from hourly rate pricing models to fixed fee / project structures. This is not always possible (especially with undefined projects), however worth exploring if you operate in a way where work can be described in projects. Flexibility is the key to meeting the needs of the client while keeping a viable business operating. I am a fan of some of the value-based thinking prescribed by Alan Weiss www.summitconsulting.com and his books make for good reading on this subject.
These are just some of the different options and thoughts around pricing. For more information, support and specific strategies, please feel free to contact me on 07 3899 8335.
Best wishes – Megan Walker