Whether you are a sole trader, an SME or a corporate, your pricing strategy will contribute significantly to the ultimate fate of the enterprise. Implementing a premium pricing strategy could well be a very profitable move for you…
Premium pricing strategy
All too often when business plans are drawn up, entrepreneurs look at the lowest prices provided by potential competitors and assume that by beating those, they can win business in their sector.
This is a common fallacy which suggests that customers can cherry pick your service or product and ignore any added value which you may be offering. Successful business marketing is about far more than simply beating the lowest price.
You should not be looking at a competitor’s pricing in isolation, but at the package they are offering. Do you offer warranties, better day-to-day services or other added-value and how do the competitors compare?
Rather than looking at the lowest price, look at the ceiling price within your sector and how competitors maintain that price. Also, remember that the current highest price may not be the top price which customers are prepared to pay if they can see a better service or product on offer.
The price elasticity in many markets demonstrates that customers are prepared to pay more for a service or product if they feel they are getting value for money. Your marketing strategy must take the dynamics of your sector into consideration and set a price accordingly.
Never under-value your product or service, otherwise, why are you in business? You presumably believe that you have an edge over your competitors through the benefits your business can provide to customers or the value add-ons you can provide. Clients are prepared to pay for this and you should set your prices accordingly. A niche place in the suppliers’ market is always available. An in-depth understanding of the market and demand will allow you to refine your cost structure and profitability.
Once you have the strategy in place, stick to your guns and don’t get embroiled in a price war. You can avoid this by providing exclusive services post contract, and ensuring that your offer provides protection against falling prices in the market. At the same time, it is important to continually review those extras you offer. If they are not being taken up by customers and the overheads are significant, be prepared to drop them and concentrate on those add-ons which are positively affecting the bottom line.
A business marketing strategy involving solid company branding will also stand you in good stead in the event of a competitor-initiated price war.
It is important to understand the risks of price variation. If you set prices low to buy market share at the outset, you could affect the standing of your brand. The danger is that you may need to increase prices and existing clients tend to shy away when asked to increase their own outgoings. Even where your internal costs mandate an increase, clients will expect increased quality or service as a justification.
If you aim to provide a premium product or service, ensure that this is reflected in a premium pricing strategy from the outset.