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Are you trying to compete on price? Forget about it, there’s a better way.
I just read this piece in the Harvard Business Review saying businesses should focus more on the mind games of pricing. But honestly, I think they’re missing a big piece of the puzzle. They’re assuming you’ve already got an awesome product or service, and all you need is a slick pricing strategy to make it sell.
As a business owner, setting prices comes with its own set of challenges and responsibilities. It’s crucial to ensure that our pricing strategies not only cover business expenses but also make a profit. Confidence in selling our products and services is key to business scalability and staying competitive.
Here’s my take: it’s time to step back and really look at what we’re selling. Are we delivering top-notch quality, reliability, and real value? That’s where our focus should be. And when your focus is there, you won’t have to compete on price.
We need to make sure our prices don’t just lure customers in, but actually back up a product they’ll love. It’s not just about making it easy for folks to buy; it’s about making them glad they did. Let’s talk about flipping the script and putting real value front and center.
Breaking the Price Barrier: Why Every Dollar Counts
I always say that if people are complaining about your price, they don’t know why they should choose you.
Let’s face facts, price is a critical factor, especially when your customers are balancing their checkbooks against their desires. We’re talking about a world where people weigh the value of every purchase against essential life needs. This isn’t just about affordability; it’s about making hard choices.
So, if you’re trying to compete on price, the solution isn’t in playing fancy games with pricing strategy, it’s something much more fundamental. Offering competitive prices does not necessarily mean sacrificing profit margins; it’s about differentiating yourself by providing unique value propositions and superior shopping experiences compared to your competitors.
Trust or Bust: The New Currency in Town
Sure, having enough cash to make a purchase is one thing, but there’s a bigger player in this game: trust. It’s about the confidence that your hard-earned money will bring the results you’re looking for.
Competitive pricing plays a crucial role in building this trust by strategically selecting price points based on competitor pricing, ensuring that customers feel they are getting value for their money.
In a world where you’re bombarded with choices, trying to compete on price often becomes a secondary concern. Let’s face it, out of the myriad options available, less than 1% truly live up to their hype.
So, the real deal-breaker isn’t just about price tags; it’s whether your product or service can fulfill its promises. With a backdrop of broken promises and unmet expectations, each buying decision for consumers feels like rolling the dice. Are they willing to wager their money on uncertainty? More often than not, they’re not ready to take that risk.
Pricing Strategies: Ditch the Psychology
Let’s dive into that Harvard Business Review article. This article is outlining 6 popular pricing strategies. And these are all valid if you don’t want to compete on price. What I think they fail to acknowledge is that psychological tricks aren’t going to guarantee conversions.
Let me say this another way – I don’t think psychological pricing tricks can overcome product or service quality and customer experience. A competitive pricing strategy, which involves strategically selecting price points based on competitor pricing and market conditions, is essential to truly succeed.
You buyers are cautious – heck they are PISSED! Think the constant shrinkflation, think about prices constantly going up without commensurate increases in value.
For some reasons everyone things they can just charge more for nothing. This isn’t going to work anymore.
Having said that, let’s take a look at these pricing strategies from a practical point of view.
When and How to Use These Pricing Strategies to Compete on Price: A Competitive Pricing Strategy
Here are the 6 pricing strategies outline in the Harvard article. Again, before you just choose one of these, think about your buyer and what they want from your product or service.
Competitor pricing plays a crucial role in implementing a competitive pricing strategy. By conducting market research and analysis, you can assess the prices of your products or services against competitor prices.
Don’t overstate your features or benefits. Aim to underpromise and overdeliver. Instead of just throwing features out there because they sound good, actually dig deep and look at ways that you can give your customers guaranteed results, faster results, less effort on their part.
Tiered Pricing: The Buffet of Choices
When to Use: Ideal for services with varying levels of features or products with different quality tiers. Think streaming services or software packages. When Not To: Avoid if it complicates the customer’s decision-making process or if your product doesn’t naturally lend itself to tiering.
Tiered pricing is like a buffet – offering something for everyone. It’s a strategy that shines in situations where customization and choice are key. Netflix does this brilliantly, with options ranging from basic to premium, catering to different appetites and wallets.
Incorporating competitive pricing strategies is crucial in this context. Constant monitoring and adjustment of prices based on factors like supply chain disruption, changes to customer demand, and the arrival of new disruptors in the market can help prevent market share losses and enable more strategic decisions in the long run.
Don’t get me started on streaming services. Netflix has created these tiers and given their customers the option of paying “less” (what they were paying a few years ago) only with commercials.
People are PISSED. @poojsvarietyhr Netflix ads tier is not great #youngroyalsnetflix #netflix #netflixmovies #netflixshows #wednesdaynetflix #sandmannetflix #GenshinImpact32 ♬ Psycho Killer – Talking Heads The NFL is guilty of this as well. They’ve had games on Amazon Prime and literally gated content so that even local teams can’t see their team play during the regular season unless they are Amazon Prime customers.
Not Good.
The idea behind tiered pricing is to bring customers who couldn’t afford your product or service into the fold. You can offer less, but don’t cannibalize your core offer and what your brand is known for.
Netflix has broken two important elements of their brand promise – account sharing (which was their core competitive advantage) and they’ve added a lower cost option that includes commercials.
They are trying to get new users, but they are also degrading the experience for their loyal customers.
BOGO: The Oldie but Goodie
Buy One, Get One Free – this classic strategy has made a comeback, and why not? It’s perfect for inventory clearance and catching the eye of the bargain hunter. But remember, the value of the primary product is crucial. Don’t let the deal overshadow the quality.
Understanding and reacting to competitors’ prices is essential. Monitoring and analyzing competitors’ pricing strategies can help you stay competitive and maintain customer loyalty.
When to Use: Great for inventory clearance, seasonal promotions, or attracting deal hunters.
When Not To: Steer clear if it devalues your primary product or if the deal seems too good to be true, which can raise suspicion.
Discounts and Anchors: Use with Caution
When to Use: Effective during limited-time sales events or when introducing new customers to your brand. When Not To: Risky if used too frequently, as it can set unrealistic pricing expectations and diminish perceived value.
Here’s a tricky one. Setting a higher base price and then slashing it can reel in customers, but it’s a double-edged sword. Use it wisely, ideally in scenarios like seasonal sales, where the discount feels like a special event, not a daily deception.
Understanding competitors pricing strategies is crucial. Setting prices based on competitors’ prices can attract more customers and increase market share. It emphasizes the importance of understanding consumer perception of value to effectively implement competitive pricing.
The 2023 Black Friday season is a terrific example of this strategy FAIL.
TikTok had a series of videos of consumers going to Target and sharing that the Black Friday price was no different (and sometimes higher) than they were previously. @red_pump17 Retailers and their fake Black Friday deals…. Continue the boycott.##fypシ゚viral##❤️🖤🤍💚##fyp ♬ original sound – 10 Toes Down Wit Palestine🇵🇸
Charm Pricing: Subtle Yet Effective But Only Sometimes
When to Use: Apply for small-scale retail items or price-sensitive products where a slight difference can influence decision-making. When Not To: Avoid if your brand positions itself as high-end or if rounding up would simplify pricing without impacting perception.
That 99-cent trick? It’s everywhere, and for a good reason. It nudges the customer’s decision-making subtly. It’s not about deceiving; it’s about making the price more palatable, more… charming.
As a fiscally responsible business owner, controlling costs and ensuring profitability is crucial. Pricing too low can have negative effects, so smart pricing strategies are essential to achieve a healthy profit.
The latest research, however, is saying that this isn’t a silver bullet. So while this is certainly a pricing strategy, it isn’t all it’s cracked up to be.
Subscriptions: The Gentle Long-Term Embrace
When to Use: Best for services requiring regular use or long-term engagement, like software or fitness memberships.
When Not To: Not ideal for one-time use products or if it locks customers into long-term commitments without sufficient value.
Subscriptions are the modern-day layaway plan. They make large payments feel like a gentle hug rather than a bear squeeze. Ideal for services where you want to hold onto your customers for the long haul.
One effective strategy to attract more consumers is to offer a lower price than your competitors. This competitive pricing tactic can help create more leads and increase sales.
But here’s the deal. There are so many people running a subscription model, that you’d better make sure that your offer is subscription worthy. Otherwise, you’re going to find yourself with a lot of turnover.
Bundling and Price Matching: Creating Irresistible Packages
Bundling is like the combo meal of the business world – offering a complete package that’s hard to resist. It’s about wrapping up related products or services with a neat bow and a single price tag. This approach not only boosts perceived value but also serves up a taste of your diverse offerings. Perfect for when you want to give customers a fuller experience, introducing them to products they might not have explored on their own. Ideal for businesses looking to provide a comprehensive solution while enhancing the overall customer journey.
Another effective strategy is offering products at lower prices to attract new customers. By reducing prices compared to competitors, businesses can increase market share, boost profits, and build brand loyalty.
When to Use: Effective when you have complementary products or services that together enhance overall value. When Not To: Not advisable if the bundled items don’t logically fit together or if one item significantly outshines the others, making the bundle seem unbalanced.
Underpromising and Overdelivering: The New Sexy in Business
Honest Value Over Competitor Pricing Gimmicks
This is where we get real. It’s time to strip away the fancy packaging and focus on delivering something that genuinely wows your customers. It’s about being the tortoise in a race filled with hares – slow, steady, and reliable wins the race.
One effective strategy is to set a premium price, positioning your product above the competition to establish it as a higher quality option. This approach allows you to compete on quality rather than price.
Building a Fortress of Trust
Transparency is your new best friend. Be open about your costs, your process, and why your product is priced the way it is. Build trust brick by brick – it’s the foundation of long-term customer relationships.
One effective strategy is to set your prices equivalent to the prevailing market price, which is the price set by your rivals. This approach allows you to remain competitive while differentiating yourself through unique marketing strategies.
Success Reimagined: Satisfaction Over Sales
Here’s a radical thought: let’s measure success by customer satisfaction, not just sales figures. It’s about creating a tribe of loyal followers who don’t just buy your product but believe in it.
One effective strategy to achieve this is price matching, where a company agrees to honor the same price as a competitor if a customer finds a similar product elsewhere at a cheaper price point.
Practical Tips for Navigating the New Landscape with Strategic Price Points
In a market where trying to compete on price can often feel like a race to the bottom, it’s crucial to shift gears and focus on what truly sets you apart. One effective strategy is price skimming, which involves initially charging a high price for a new product and then gradually lowering it over time. This approach is particularly beneficial for innovative brands with in-demand products, as it allows them to maximize revenue from early adopters before targeting more cost-conscious customers as competition increases. Let’s dive into some practical tips that will not only help you stand out but also ensure you’re delivering real value to your customers.
Listening to the Voice of the Customer
Involve your customers in your product development. Their feedback is the compass that guides your journey towards a product that not only meets but exceeds expectations.
However, be cautious of engaging in a price war, as continuously lowering prices to compete with larger competitors like SHEIN can devalue your products. Instead, align your pricing strategy with your business goals and market position.
Marketing with a Heart
Develop marketing strategies that reflect the real benefits of your product. No fluff, no puff – just pure, unadulterated value.
Setting strategic price points is crucial to ensure your product remains competitive in the market. By analyzing the pricing of similar products sold by competitors, you can select price points that take advantage of the product market relative to the competition.
Customer Service: The Unsung Hero
Never underestimate the power of stellar customer service. It’s the safety net that catches and addresses any customer concerns, reinforcing your brand’s value promise.
When setting prices, it’s crucial not to base them solely on the competition. Doing so might give your target market the impression that your business is inexperienced or of lower quality.
The Dawn of a New Era in Business
We’re standing at the brink of a new era in business – one that favors honesty, integrity, and genuine value over flashy marketing tactics. You don’t have to compete on price.
A key component of this shift is the adoption of a competitive pricing strategy, where businesses strategically select price points for goods or services based on competitor pricing.
It’s about building a brand that’s loved not just for what it sells, but for the honesty and reliability it represents.
Welcome to the great reboot of business. It’s not just a change; it’s a revolution.