PRODUCT PRICING FOR BUSINESS GROWTH
Whether you're launching a new product or restructuring your pricing strategies to succeed during the pandemic there are some key factors that could help your business not only survive but also thrive despite a Covid 19 environment.
Pricing is a critical component that determines the success of a product or service in a marketplace. Even if your product does not have competition it would be presumptuous to believe that all consumers will be open to paying the asking price during the pandemic.
A stable and profitable business is one where A Need Exists, A Viable Solution is Created, A Definitive Value Proposition is Communicated, the Consumer Experience Journey is Frictionless and has a Growing Customer Base. However the current market scenario may not allow for any or all of these. If your product is innovative and revolutionary ~ the risk you face is that consumers don’t know why they need it and how it can help improve their lives. If your product is another option to competitive brands then consumers will benchmark your pricing against the competitors and possibly look for a cheaper option. If your product is already highly commoditised, there is very little room to manoeuver and therefore a revised pricing strategy might be on the cards.
All to often businesses take the top 5 market brands and either average the pricing for the product or charge 5% - 15% above the market leader because they believe that they are better and that consumers are willing to pay more. Three to Six months later they find themselves either out of business or dropping pricing by 10-20% or offering 2 plus 1 offers because nobody is buying and they have tons of unsold inventory.
We preface that the solutions in this article do not cover other aspects involved in market success such as Branding, Advertising & Marketing, Value Proposition, Consumer Experience Journeys, GTM Strategies etc.
It relatively easy to put together a group of people and directly ask them what they would be willing to pay for your product. Then use that as the base and set the price. The problem with this approach is people ether tend to “low ball” or chose to go with one of the answers you told them (because they don’t remember the price they pay or feel overwhelmed by the other participants in the room) when you asked the question.
Ex “This is new brand of Milk we are launching. Would you be willing to pay INR 24/- or INR 28/- or INR 32/- for it?”
Almost all purchase decisions come down to emotions and consumers never have a definitive (singular) price. They only have ranges.
It is also relatively easy to consider your source, manufacture and distribute; adding 15 - 25% on that and price your product. The problem with this is unless you have got your supply chain working at 100%+ efficiency, you will either leave money on the table or under price; leaving very little for Marketing and Organisational Growth.
WHAT SHOULD YOUR PRODUCT PRICING STRATEGY BE TO SUCCEED IN A MARKETPLACE?
There are 3 factors that every business should consider when Strategising Product Pricing.
Data of Consumer Price Sensitivity & Perceptions
Data on Competitive Environment & Competitor Pricing
The New Normal
Consumer Price Sensitivity & Perceptions
There are 4 questions that every business must ask a large group of prospect customers when trying to understand Consumer Price Sensitivity & Perceptions
At what Price will you start questioning the quality of this product? (Too good to be true)
At what Price will you think this product is starting to be a bargain? (A Great Deal)
At what Price will you think this product is starting to seem expensive? (A Little Expensive)
At what Price will you think this product is too expensive? (Very Expensive)
Visually plotting these answers on a graph will give you the Price Sensitive Range and Consumer Perception Range
As price increases, people's perceptions of lower quality and perceptions of a great deal decrease.
The point at which “Too Good To Be True” and “A Little Expensive” meet is the Point of Marginal Cheapness or “Minimum Price to Market”.
The point at which “It's a Great Deal” and “It's too Expensive” meet is the Point of Marginal Expensiveness or “Maximum Price to Market”.
The point at which “It's A Great Deal” and “A Little Expensive” meet is the “Most Attractive Price for Most People”
Since almost all businesses operate in a competitive environment, it is equally important to map and superimpose the competitive product pricing on the above graph.
If you find that your ideal profitability is not being met, efforts must be made to further optimise the entire supply chain including marketing and sales.
The New Normal
Customer behaviours have changed considerably since the beginning of the Covid-19 pandemic. In the new normal, Customers have become more tuned to “Trust but Verify”. Customers will constantly need Brands to verify and remain cheerleaders in their success and saviours in their need-states.
The new normal demands a balance of give and take. Customers need to constantly experience a brands commitment to a win-win and that they consistently check in with Customers to keep the relationship alive and healthy. Brands cannot only speak up when they want customers to buy a product and never show up when the tables turn.
In the new normal, customers expect brands to keep things real and honest. Promises Kept Makes Customers for Life. Failure to do so will result in the door hitting brands on their way out.
In closing, understand that who your customer is, how has the pandemic affected him, where are his new pain points, how does your product help alleviate his pains, and why should he trust you? are all equally critical when considering your Product Pricing during a Pandemic and market slowdown.
Trigger Worldwide is a Brand Marketing Agency, built specifically for businesses to create Sustainable Growth. Our proprietary tools and process methodologies harness Technology, Creativity & Innovation, leverage Economic Drivers and Consumer Beliefs to help businesses overcome marketing inefficiencies and achieve their Growth Agendas.
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~ Trigger Worldwide