5 Pricing Challenges: What You Need To Know To Improve Outcomes

Pricing Challenges - Image of Price TagDo you face pricing challenges?

Don’t worry since you’re not alone.

Why?
Because pricing is the hardest of the marketing 4Ps.

In today’s always-on, always-connected world, pricing faces even more challenges since it must be contextually relevant across platforms and devices.

Merriam-Webster defines pricing as as the quantity of one thing that’s exchanged or demanded for another.

Why does this matter for your business?
Because pricing has a direct impact on your ability to make money and succeed.

To help you price your products and services better, let’s examine 5 of the biggest pricing challenges and how to approach them to reduce risk.

5 Pricing Challenges

Use this advice to overcome pricing challenges. These principles apply to the pricing needs of B2C, B2B and solopreneur businesses.

1. Fear Of Setting Wrong Price

To avoid the pricing challenge of setting an amount either too high or too low, do your homework. When customers don’t buy because something is out of their price range, you lose money because you don’t cover your costs. Or, if you set a price that is too low, potential buyers don’t purchase because they think it is cheap. In either case, you face a potential opportunity loss.

Actionable Marketing Tips To Avoid Pricing Challenges:

  • Assess pricing of competitors and near substitutes. Analyze what your direct competitors charge for similar products and services. But remember that holding product inventory has associated costs.
  • Determine your marketing position. Consider how prospects view your business. Does this influence their willingness to pay for your products and services?

 

2. Squeezed Margins

Since prospects have increased access to information across platforms and devices regardless of whether they buy at retail or online, make your pricing transparent. So don’t compete on price because your profit margin will decrease. Even worse, a competitor will make them a better deal.

Actionable Marketing Tips To Avoid Pricing Challenges:

  • Change your offer to avoid competing on price.  Think in terms of augmenting your product with other benefits.

    5 product levels of product hierarchy

    Philip Kotler’s 5 Product Levels of Product Hierarchy

  • Know your actual cost structure. Then, make sure to cover fully loaded costs in the long term. Also, understand the lifetime value of your customers (aka: CLTV).
  • Create alternative revenue streams. Assess where you can add other products or services. For example, airlines now charge for meals on flights.
  • Improve your purchase and onboarding processes to better retain customers. Since your customer experience (or CX) matters.

 

3. Easy Access To Competitors And Near Substitutes

With increased device usage including computers, tablets and voice-first options, prospects can compare prices with a few keystrokes or a few words. At a minimum, you’re competing with Amazon and other digital shopping options.

Additionally, a proportion of prospects may go to your store only to see the product in real life, a practice known as showrooming. This activity provides shoppers with the ability to choose the lowest price and order instantly from another retailer either online or in-person.

Actionable Marketing Tips To Avoid Pricing Challenges:

  • Enhance promotional offers to make products and services more competitive. Provide different pricing options to effectively lower your price for customers without actually changing your price. For example, John Lee Dumas did this for his book, The Mastery Journal sold on Kickstarter.John Lee Dumas - the mastery journal overcomes price challenges
  • Empower store employees to offer better pricing. Set clear guidelines about how to handle discounted prices. Also, explain any related documentation the employee needs to include. Where possible, only allow more senior personnel to make these offers.

 

4. No Need For Physical Presence/Location (for most products)

Unless you need to visit the end user of your services (or have them visit you),  such as a plumber or a doctor, prospects can choose a supplier located anywhere.  As a result, having a physical location may not matter to your potential buyers. While this may cause pricing challenges for some businesses,  it may provides other types of business opportunities.

Actionable Marketing Tips To Avoid Pricing Challenges:

  • Deliver products and services to a broader geographic audience. Since location is no longer constrains your business.
  • Expand the use of  your retail establishment(s). Add and enhance the in-store experience and activities. As a result, your stores provide more than product showrooms. Offer new services such as training and other events.
  • Build and expand your local community. Use your retail establishment to engage with your customers face-to-face. Give them a place to congregate and interact around your products. For example, yarn stores often have “Knit Nights”.
  • Extend your mobile and voice-first presence. Be available to prospects, customers and end users on the device, platform and location of their choice.

 

5.  More Diverse Product and Offering Options

With a broader array of product and service options available across devices, platforms and media entities (including social media), your customers have access to more choices than ever before.

In addition, with the sharing economy, customers can choose to not buy a product. Half of 25 to 34 year olds would rather sign up for a membership to a product or service than to pay extra to own it  (Source: GlobalWebIndex.)

Sharing economy -Pricing challengesSharing economy projected to grow to $335 billion in 2025-PwC

Actionable Marketing Tips To Avoid Pricing Challenges:

  • Make your business visible on mobile and voice-first devices.  To enter  the consideration set, help customers and their influencers to find you when they’re in shopping mode, either in a store or on their couch.
    VCI 2021- Buyer Journey Voice-First Research
  • Choose your positioning carefully. Determine your unique selling proposition (aka:USP) and how it relates to your customers needs.
  • Select your target audience. Decide who you want to reach and how you want to compete for their business. When in doubt, seek a smaller niche.

 

Pricing Challenges Conclusion

Regardless of the type of products and services you offer, pricing challenges complicate your work.

Adding to your pricing woes, your customers, influencers and end users have access to more information about products and near substitutes through their use of mobile and voice-first devices.

So do your pricing homework before setting prices!

Where possible, create different offers to give your buyers a choice like John Lee Dumas did.

And don’t forget that it’s always easier to reduce prices than to increase them.

Since you won’t have perfect pricing knowledge, do your best and know that sometimes you may need to adjust your price.

Happy Marketing,
Heidi Cohen

Heidi CohenHeidi Cohen is the President of Riverside Marketing Strategies.
You can find Heidi on FacebookTwitter and LinkedIn.

 

Editor’s Note: This post was originally published with the title, How Social Media and Mobile Change Pricing Strategies, on January 25, 2013. It has been extensively updated and revised.

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