Choose a price that Sells! (Part II)
Choose a price that Sells! (Part II)
PROFIT!
You have to make a profit or you won't survive. The right price
is critical to your commercial future. It *is* your most
important marketing decision.
Why? because misjudging your price points in this digital era
costs dramatically more than it did in the past. Internet
markets mature rapidly.
You have to be prepared to adjust pricing frequently or upgrade
your product/service to maintain your price. The best price is
never static.
So, what do you do? Get the e-commerce equation right... every
time!
Great Product + Perfect price + Satisfied Customer... = *SUCCESS*
A lifetime of success, that is. A buyer decides if the price is
acceptable by determining the benefits of the product and by
considering the competition.
The seller prices to maximize profit, while considering the
bigger picture business model (i.e., high price/low volume or
low price/high volume).
The best price must pay for the cost of production, marketing
and overhead costs, and still make a profit.
Let's say that Product X costs you $20 to make, market, sell,
and distribute. But let's say that your customer is only willing
to exchange $10 for it. This equation is definitely "off the
rails" and will stay there, permanently, unless some major
modifications are made.
"Hard Knocks" life lesson learned by this experience? The most
important determinant of the best price is *always* what the
product is worth to the customer.
This is the beauty of a MYPS! survey: You learn the exact price
that people are prepared to pay for your product so that you can
assess whether your product or service is worth pursuing or not
-- saving time and money.
Before your prospective customer can tell you what your product
is worth, she must understand what it will do for her. So you
must be able to answer the question... What's in it for me?"
That's where an effective Web site is absolutely necessary. A
great site educates the customer about your product's benefits
and features. It builds perceived value.
For example, if you are going for a high price/perceived value
model for your product,the Web site must reek of money... no
corners shaved. Every high-end detail must be polished to a
shine.
Figure out your target group. Who is most likely to see the
benefits of your product immediately? Does the copy on your Web
site reflect that awareness?
And, you can't afford not to keep "tweaking" your site
periodically. Market conditions demand surveillance. Perhaps you
need to upgrade your product because your competitor has come up
with an interesting angle. Or you need to counter-attack a
mature market.
What if you discover an untapped segment of the population? Your
site has to be able to capture their attention and make that
visit-to-sale conversion.
Actually, your site has to go beyond that. It not only has to
get the sale, it has to build perceived value in your product.
If the customer "gets it" (in his or her head), both the
perceived value and the Conversion Rate will be high. Follow the
principles of Make Your Site Sell to double perceived value
*and* your Conversion Rate...
DON'T GUESS. BE ACCURATE!
A theoretical best price for your product may look reasonable
and saleable on that fancy spreadsheet or after a discussion
with your hired pricing consultant. But it might be totally
off-base to your customers' "personal" prices. And if it doesn't
jive then you might as well leave the dance hall.
You have got to know confidently at which price point your
customers are thinking... "Yes, this is worth it." Or
conversely, at which point *price-resistance* kicks in. That's
the price where your customer starts to think... "I don't need
that as much as I thought I did."
This brings us to a critical concept that we call the TEETER
POINT (tm). It's that prive at which the consumer just can't
make up his mind. Basically, it's a 50-50 proposition -- the
credit card could stay out or it could be put away.
MYPS! develops a line graph for you that will show you where
this Teeter Point is for your visitors-not-yet-customers.In
order to identify this powerful point of consumer
decision-making, you have to *know* your customers.
The *ideal customer profile* would highlight...
Their assessment of your product in terms of importance and
impact Their buying habits Their average monthly expenditure on
similar products Their ability to find your competitors Their
point-of-resistance to a sale
Write down the answers to the first four questions...
What method do you use to get to know your customer? How do you
know what they think about your product, prive, and your
competitors?... E-mail? Street canvassing? Telemarketing?
If you were building a customer profile, would you look for the
same things that I outlined?
What would you add to be in sync with your particular product
and business?
Does your site "fit" with your customer profile? For example, a
site for "pioneers" (daring consumers ready to try revolutionary
new products) will differ substantially from that aimed at a
"mature market."
How would you rate your Web site for "Builds Perceived Value"?
How often do you revisit your site for adjustments?
Get a picture of Henry Ford and put it on your desk with a
yellow Post-it note...
"Listen to the customer... s/he has all the answers." :-)
PRICING
Of the marketing 4 Ps (Product, Place, Promotion, Price), it's
the only "P" that brings income INTO your business --the other 3
Ps all COST you money.
Pricing extracts the value that the other 3 Ps build in your
customer's mind. But exactly how high is that perceived value?
Pricing sounds so easy in theory, but ever so difficult to do in
the real world. Actually, up to now, it's been impossible for
small-to-mid-sized businesses to do it in the same manner as the
Fortune 500.
All the way through this web page, our guiding e-commerce
statement has been...
The perfect prive is that price that maximizes your profits
while building a lifetime customer through value satisfaction.
And perfect-pricing does more than just maximize profits -- it
LEVERAGES them. Here's how... Let's say that you have a net
profit margin of 10% (i.e., after ALL expenses, including
overhead, etc.).
If you could increase the prive by 10% *without losing a single
sale*, you would obviously increase gross income by 10%.
But that 10% increase in prive increases your *net profits* by
100%! And you'd still keep a happy customer who will return
again and again. Talk about a win-win situation!
But there are two big IFs in there... ...
IF you don't lose a single sale and ... IF your customer is
still thrilled with your product.
How can we be sure of those IFs? Where do we find the Perfect
price?
Simple. Start where *all* business begins... ... with the
customer.
Perfect-pricing does not always mean an increase in price. Let's
say that you decrease the prive of your product from $89 to $79.
If that doubles sales, wouldn't that more than make up for
slightly lower margins? How do you know IF that price decrease
would increase sales? Again... start with your customer.
No "guess", no "ball park", no "gut feel" terminology is
allowed. The most important determinant of prive is *always*
what the product is worth to the customer. You have to know that
perceived value level *exactly*.
The reflection exercise helps you get inside your customer's
head. Were you able to answer them all?
Quick review...
What method do you use to get to know your customer? What is
your customer profile? Does your site fit with it? Do customers
perceive your product as valuable and useful to them? How does
your Web site "show" this? How often do your readjust? Where is
your market? Where is it at in its development?
Make a reminder to yourself to come back to this assignment
every once in awhile. Keep on your toes so that a competitor
doesn't bump into your heels. :-) And don't forget about the
Make Your Price Sell! Pricing Manual. It's a treasure-chest of
pricing information. And it's free when you order the MYPS!
server-side pricing software...
Read your answers again. Now, how do you know if your insights
are correct? What's the margin of error?
Dr. Carol Ann Dorn, a McGill University marketing/consumer
behavior specialist who worked to develop MYPS!, pinpointed six
important questions that crystalize your understanding of the
customer. We divided the six pivotal questions into three
categories...
Net Buying Habits -- how often your prospect buys this type of
product, and how much she usually spends. Obviously, youUd
rather have a customer who buys in your product category,
frequently and for big bucks!
Product Impact -- how important and how unique the product is to
your respondent. Pretty clear here -- give me potential
customers who rank my product tops in importance and uniqueness!
Best price Point -- what s/he considers a fair prive for the
product, and where the customer's Teeter Point is (that prive at
which the consumer is full of indecision.)
See how these questions build a comprehensive customer profile?
Knowing your customer means knowing the right prive to charge
for your product. The Perfect prive fits the customer's *AND*
your needs (as the seller).
Now, how do you get the answers to find the Perfect price?
Expensive pricing consultants are willing to do the job, if you
have deep pockets. You could ask customers directly. But that
takes staff time and creates logistical headaches for collecting
and analyzing the data. Think about the last time a marketer
phoned your place at dinner time -- with "just a few questions"
for you. Reception level... 0.
Make Your Price Sell! makes finding the Perfect prive "do-able"
and uncomplicated. MYPS! is an exact, super-fast, cost-efficient
and truly scientific way to determine the Perfect price. It not
only gives the answers to those pivotal six questions... it
interprets the results in *illuminating* bar charts and graphs.
For example, let's say your customized MYPS! survey gets 100
replies from visitors to your Web site. These visitors are
potential customers. MYPS!'s software shows you the results. In
one of the bar charts, let's say that you see that your product
has very little impact on your prospects. What did you learn?
You need to make some changes quickly.
Develop a strategy to increase customer impact... Make a better
product. Make a better Web (Make Your Site Sell can teach you
how to do it) Aim for a different target market. Give your
product away as a traffic-builder.
You must do something. If you don't make an impact, how are you
ever going to sell anything? prive doesn't even factor in here.
On the other hand, what if your sales are great and your traffic
stats are high? Are you completely confident that you are
maximizing your profits? No money being left on the table?
MYPS's "three-in-one composite" line graph gives you all the
information you need to identify the Perfect price.
At every single point, you see how many units of your products
you will sell. You just have to match a peak on the graph to
your business model (i.e., are you pricing to penetrate the
market or are you skimming the cream?). You want high volume or
high profit, without falling into the deadly No Man's Land.
MYPS! illustrates "the lay of the land" perfectly.
Pricing. I can only give you a small overview of its role in the
big "marketing" picture. It is definitely one Marketing "P" that
you ignore at your (sometimes fatal) peril. The wonderful news
is that if you do make pricing your priority, *you* will reap
the benefits...
MAXIMUM Profit. SATISFIED Customers. LIFETIME SUPPORTERS of Your
Business.
Now, that's an e-commerce puzzle with all the pieces together!
If you would like to receive the full version of The Pricing
Masters Course , send a blank e-mail to: tpmsRB@sitesell.net
Written by Dr. Roberto A. Bonomi