Proven Pricing techniques
PROVEN PRICING TECHNIQUES
------------------------------------------------------------
copyright (c) Pavel Lenshin
------------------------------------------------------------
Product or service pricing on the Net is not as critical as many
of you have heard, yet these pricing techniques are important
marketing components and should not be underestimated.
Right pricing management accompanied with proper marketing
strategy could raise your profits sky high or bring about lost
opportunities and substantially hamper further development. Here
I would like to share the pricing techniques with you in order
to maximize cash inflow and minimize happiness outflow.
Competition makes the business world go round. Any product or
service you desire to market should be market-checked and
compared to those, which are most similar to yours. The main
three parameters that should be defined and analyzed include
market niche, demand and competition. The direction of your
analysis and result should be:
* The developing of the virtual picture of your "usual"
customer; * The estimated number of monthly sales; * The exact
prices of your closest competitors' products.
Pricing Policy based on Marketing Considerations.
The days, when product price was calculated by summarizing the
total cost of business running per product item with specified
profit markup are gone and almost forgotten. This tactics is
totally defective in our highly competitive world. Those, who
continue to define everyday prices by that method, are
stagnating with several exceptions that only prove the rule :0).
The most progressive pricing policy is dictated by Market. The
job of online business is to listen and implement the most
beneficial pricing techniques. Listen to online market or be
squashed. Given your Market analysis is ready, it is assumed
that you have already heard the market out.
The pricing strategy usually could be two types: short-term
"cream skimming" or long-term market penetration:
1. "Cream skimming" implies high price on newly invented and
promoted product. The market is fresh, the product is innovative
and "hot". The online business cycle for that strategy is
usually from 3 months to 1 year. 2. Market penetration is more
appealing to the majority of start-up ebusinesses. The graduate
growth, business credibility building, long term prospective are
the main components of this pricing strategy. As a standard it
implies the same or lower price level that exists on the market.
As it comes out from the online product nature, the overheads
are what should be looked after closely. The total running
expenditures should be summed up and known prior to the stage of
pricing planning.
Once you have been equipped with market research and calculated
expenses it is time to define the customer or retail price. You
may also define the discounted reseller price, client discounts
and so on.
The general rule here is to have the result price to be at least
twice as higher than your brake even price. If your total fixed
costs are 100 and your estimated monthly sales are 20 then to
make your business break even you need your price to be at least
5 dollars per item. In that case your price should be not less
than $10 in order to have some "price space".
In order to maximize your profit potential your price should
reflect the value, not the costs. Want to raise the price?
Increase the perceived value first. If it is still not enough to
cover the costs - you are not competitive in that market.
Know the "fears&joys" of your targeted niche. In two words there
is a substantial difference of price acceptance in offering
video course on financial trading to institutional investors and
video course on conducting an interview to the unemployed.
Decreasing price levels proved to generate more high-priced
sales in comparison with increasing price levels. That is the
reason why many marketers using the following tactics of
persuasion: "I was asked to sell it for $995, I decided to sell
for $489, but especially for You I will cut the price to $79
only for the next three hours". Imagine if s/he decided to tell
the truth like: "It cost me $9 per item to c reate, I will be
happy to sell it for $39, but I'm so greedy, that I decided to
sell it for $79". In that case s/he would probably close much
less sales :0)
Another technique is price discount, widely used by almost
everyone involved in off or online sales. With the help of
discounts the seller could achieve two main tasks: create the
feeling of emergency and increase the perceived value of the
product and what is more important - without lifting a finger.
Just try not to overdo it as your substantial price drop could
play a trick by being interpreted as bad quality of the product.
Price diversification, as the next technique, is absolute must
if you want to cover more people with different financial
capabilities. It is a mutually beneficial pricing policy for its
ability to satisfy much wider demand then "bold" asking for $99.
This tactics may be implemented by offering the "core" of the
product for the lowest price possible. Second price level is the
standard version of the product for nominal price and one or
even two "extended" high-priced versions for those who don't
mind spending additional several hundred bucks for more colorful
package :0).
Other way to go is to offer popular resell rights on digital
products that, in its nature, play the same role of price
divider and help to cover wider market, without much hassle,
although, sometimes it is not the best tactics to use, because
master resell rights add benefits and perceived value to a small
number of resell rights seekers and have zero effect on "luxury"
seekers, who look for "gold trim" at every product they buy, so
create a "Deluxe" version for them as well.
Other well-known fact is that psychologists suggest using .95,
.97 or .99 price endings as more favorable prices for our
subconscious perception rather then round numbers.
You can come up with other specific pricing techniques to suit
your business needs, just try to think them over.