Of all the marketing mix factors (product, promotion, placement and price), the price factor is the easiest to adjust and the one that determines how profitable your business will be. Many people overlook the importance of proper pricing and its contribution to the bottom line which is your profits. Without thinking about it, you make many mistakes because of not giving serious thought to your pricing strategies.
The good news is that people have realised the role that pricing plays in the overall success of their business,however ,there are still errors when it comes to this important issue of pricing. What you may think is helping your business may be in fact harming it. Let’s look at what the common mistakes made when pricing products or services.
Mistake #1: You Are Too Scared to Increase Your Prices
We find that a lot of SaaS entrepreneurs feel afraid of increasing prices. Research shows that the fear is related to losing clients if the prices go up. This fear is completely unfounded because people are aware of inflation and the effect it has on prices. If your prices remain unchanging, yet yours costs are steadily increasing, this will have a negative impact on your profitability.
By keeping your products priced the same, the implication to your customers is that your product has remained the same and that there have been no improvements and value added services in the product. This means that you will still lose customers who are interested in evolving and improving products.
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One thing to note here is that customers associate high prices with high quality so the low price may actually be impacting your business negatively. The way to counter this fear is by communicating the intention to change with enough time for your customers to adapt to the new prices.
Mistake #2: Price Discrimination
This is a strategy that all businesses should adapt but which most shy away from. Research shows that businesses that have one price for all their customers lose as much as 10% in annual revenue. Airlines, insurance companies and travel agencies were the first industries to realise the different demographics and needs of their customers and adopting their prices accordingly. This infographic from Choice Australia explains this point best.
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Many businesses are now realizing the ineffectiveness of having a single price for all their customers and are adopting price discrimination strategies. A few companies face a backlash when their different prices for different customers come out in the open. To avoid this and still capture the advantages of price discrimination, you can use discounts rather than outright different prices for the same product.
Mistake #3: Adapting Dishonest Pricing Gimmicks
For example:
- A store will entice you in with a low priced product and then once you are in the store, the sales person will steer you away from the advertised product by telling you that the quality is not good or that they have run out and instead show you a more expensively priced product.
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- The seller informs a customer that they have won a prize but one of the conditions of getting that prize is to buy another product.
- Mail order items that look very attractive on paper but physically, are of low quality once the customer receives the product.
- Buy one get one free strategy which leads customers to believe that they are getting two products for the price of one when in reality the price of both has been incorporated into the one. This gimmick is often used to get rid of slow moving products.
- Five for five or ten for ten where stores imply that you must buy ten or five of the items so as to get the deal.
More often than not, this is as a result of unmet targets, and business owners get desperate and adopt dishonest pricing gimmicks which when they come to light, can damage the reputation of your business. Brainstorm other ways of boosting sales and leave you reputation intact. JC Penney recently faced accusations of raising their prices and then offering a sale. Careful industry observers noted that the sale was the original price of the products.
Mistake #4: Complicated Pricing For The Customers
Businesses lose revenue when a visit on the price landing page that would have resulted in a conversion fails to do so because of the price page. Rather than making it as simple as possible to ease the conversion, the price page is filled with an overload of information such as features of the product which result in confusing the buyer.
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Business owners imagine that the extra information will entice the customer to make the purchase when it works in the opposite way. It confuses the buyer and makes the page appear cluttered. Rather than buy, they close your website and you lose a sale that was almost a sure thing. Keep the price landing page as easy to use as possible and avoid overloading it with information.
Mistake #5: Using A Non-mathematical Method To Come Up With The Prices For Your Products
Surprisingly many business owners surveyed own up to going with their instincts when pricing their products. This is a huge mistake and really affects the revenue of your business. Research the market, and know how much your customers would pay for your products.
Consider setting a value based price by knowing your products and then use pricing strategies to come up with a price that will ensure profitability of your business. It is also important to research your competitors and what pricing they use. Finally be flexible and keep studying the market for any changes that will influence your prices.
Final Thoughts: Pricing Is The Key
When you have your products priced correctly, the profits of your business will go up and your market share will increase significantly.
Research shows that pricing is the single most important determinant of the success or failure of a business so it is crucial to get it right. Besides getting it right, pricing strategies must be revisited whenever the factors of production shift. The prices need to be adjusted accordingly.
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