From time to time, big companies try to outrun their competitors by enticing customers through one of the most effective ways they know customers respond to – pricing.
Usually, it’s the big dogs that come out unscathed in a pricing war. For smaller businesses offering similar products/services, keeping up and staying relevant in a pricing war can be hard or even almost impossible because they do not enjoy the economies of scale like big companies do. Large scale production helps them spread their costs as thinly as possible but since smaller companies do not have the resources to produce large-scale, they are faced with higher production costs. In a bid to break even and make decent profit, the product pricing is one of the first things that gets a hit.
As a business, it is important that you are able to gauge the effect of your price on the acceptance of your product. Here are 3 ways in which you can identify if your price is actually limiting your market reach:
1. Compare Competitor Prices Across The Board
In order to know the effect of your price on the acceptance of your brand, you need to find out what your competitors are offering customers by understanding their prices for same or similar products across board. Your competitor is not just a competitor but also a blueprint. You need to study them, learn as much as possible about what works and what doesn’t.
Tracking your competitors will help you understand where your business stands in the competitive landscape and allow you to not only drop your price at the right time, according to your pricing strategy, but also know when to increase it again to ensure you’re maximising margin whenever possible.
It is very important to understand the power of every extra cent and its value to the customers. Interesting fact is that stores would rather put a $14.99 price tag on a product rather a $15 tag. Do you know why? It’s a mental trick that works because the customer’s mind registers the first part of the price before the extra digits after the decimal. In the customer’s mind, they’re paying $1 less, when, in reality, they are getting just a cent off.
Bottom line is that you need to be watching your competitors closely so you can be on top of your game.
2. Know the Importance of Brand Value
What are customers willing to pay when they buy products from your competitors? Beyond looking at price as a determinant for setting your own price, there are other things that customers pay for: brand value and brand goodwill. A designer fashion brand will definitely not be on the same price level with a startup fashion brand. Why? The bigger brand has put in so much time, effort and resources to build a brand name.
When customers pay a premium, it’s not necessarily the quality of the material alone but also the perceived value attached to a brand, its uniqueness, service and the list goes on. As a business, it is not just setting prices correctly, but also really understand the value that will drive customers to become loyal to your brand and focusing on getting it right in order to become relevant and indispensable to them.
3. Understudy the Effect of Promotional Initiatives
To know the extent of the effects of price change on consumers’ response to your products, you can create limited time offers, sales and discounts. The easiest way to use this to your advantage is to work the big figures. So, let’s say you have a $2000 product and want to give a 15% off for a certain period. 15% would translate to $300. Which do you think the customer would jump at first… the idea of getting 15% off or saving $300?
For products with big price tags and small percentage offers, the savings is better appreciated when the numbers are calculated in dollars but for products with small price tags (say $20), 15% off may actually sound more attractive than “Save $3.50”.
You can also experiment with different types of promotional campaigns such as bundles, which will provide you a better understanding of customers’ interest in certain categories or products and how much they’re willing to pay for it. You can also focus on promotions for specific categories to understand which ones perform better and have potential to drive traffic and more sales to your store.
What is the key to finding the right price for your product?
Knowing how to choose and execute the right pricing strategy is extremely important. For that, you need to understand your competitor’s pricing strategy, which is critical to your survival and success.
To ensure that your product price is accurate and reflective of current market, get the prices your competitors are offering across board, experiment with promotions and discounts and gauge customers’ response to the price change, know the extra value that competitors are offering beyond lower prices, assess the impact of perceived brand value on product acceptance and strategise on ways to increase your brand value and become relevant to customers, which will increase the likelihood of success for your business.