The price you charge for a product or service is based on a number of factors. In combination, they constitute a pricing matrix that’s partially data driven and partially business intuition. The business sense that goes into determining your pricing isn’t very mysterious. You probably already know your costs and other base factors. The intuition component you’re using to create your pricing may be another matter.
Customer Expectations and Product Pricing
There’s an old story about canned tuna that goes something like this: Acme Cannery sells slightly pale tuna as a result of its canning process. Sales are down compared to canneries selling tuna that has a nice pink color. In a bold move, Acme markets its tuna as the brand that “doesn’t turn pink in the can”. Almost overnight, the public’s perception of pink tuna undergoes a change, and Acme’s pale tuna starts selling big.
Customers have preconceived notions about the products they buy, your products included. Their assumptions will have an impact on sales. Some perceptions may be the result of marketing campaigns by your competitors. Others may be cultural, economic, geographical, or age related.
Value and Price
The example above illustrates the fact that perception creates value for the consumer. Sometimes perception is hype; sometimes it’s based on the word-of-mouth advertising that results from providing a superior product or service. Price your products too high on the price vs. value scale and you lose sales. Set your price too low, and your products may be considered inferior by association.
Understanding the “value” perception of a product will help you plan your pricing more effectively. Start by building a profile of your ideal customer. The more targeted your product development, marketing analysis, and distribution strategy is, the more likely you’ll be to hit the bull’s-eye with your pricing.
We’ve discussed the importance of obtaining good market intelligence before. Your current customers are your best resource when it comes to obtaining accurate information about how to develop and price your goods:
- Review sales data daily
- Use social media
- Encourage website blog comments
- Start a newsletter
- Use instant Internet surveys
- Mount direct mail campaigns and track the results
- Employ mystery shopping services
- Develop on-sight surveys
- Include mail-in cards with new products
While you’re developing useful methods for acquiring insights about customers, take a look at your competition too. Your competitors aren’t necessarily getting it right, but knowing what they’re doing will give you important information. Potential customers are scoping out your competition, and so should you. The key here is to be consistently observant. If you want eyes-on the competition, you can hire undercover shoppers to check out competitor pricing, promotions, and store displays on a weekly or monthly basis. What is your nearest competitor offering? Does he have a range of products that address different markets and price points? Can you learn anything from his approach and capitalize on the gaps in his strategy?
One big advantage you have as a small business owner is that you can respond fast to trends and recognize what is and isn’t working in time to do something about it. Pricing is no exception. Use customer expectations to help you build a successful pricing matrix.