One of the trickiest aspects of business is pricing. It’s important that your profit margin is sufficient, and your pricing can affect the demand for your products and services. The age-old question is how much are consumers willing to pay? Consideration of the pricing of competitors is another concern, and this will also affect what consumers will pay.
In this post, I will cover six pricing strategies.
Cost-plus pricing is popular, but is it the best way to price digital projects? If you are using cost-plus pricing for your digital products, you are likely pricing your products too low. Keystone pricing is widely used in retail. Keystone pricing is simply determining the retail price by doubling the price of the cost of goods.
Here are four other approaches:
If your digital product will help your customer or client make money, how much money could they make using your product? If your goal is to maximize your profits, would it be better to sell one product for $197, or ten products for $17 each?
That’s a no-brainer, right?
Unless you wonder whether you can sell a product for $197 that you’ve been selling for $17.
Since your customer acquisition cost for getting one customer can be less expensive than finding ten customers, you have immediate savings on your marketing. But, what will induce someone to buy your $197 product? Quality.
A higher price implies higher quality, so if you can deliver a high-quality product that will help your customer or client, your higher price communicates to your prospects that your products are higher quality than something priced much less. That’s basic psychology, and you can use it to your advantage in your pricing.
What features can you incorporate in your product to justify a higher price point? A premium product can demand a higher price, but a product that is perceived as not offering enough value will sell poorly and will result in more refunds.
What about your competition? Certainly, do a competitive analysis, but what does your product offer that there’s doesn’t? What is unique about your product? What value do you offer that they don’t?
If your product is a “me-too” product, that is, just like your competitor’s, you have no choice but to compete on price. But, if you can show how your product is superior to other similar products, you have the pricing power necessary to set your own value-oriented price.
Psychological Pricing Methods
Everyone’s familiar with psychological pricing methods since they’re used all over. Gas stations price their fuel with a 9/10 at the end (like 2.999) for the same reason that stores sell merchandise for $9.99 or 19.99 or 99.99. It looks cheaper. Prices ending in 9 are called “charm pricing,” and if they weren’t effective, businesses would have abandoned this pricing scheme long ago.
Prestige pricing is the opposite of charm pricing. Instead of dropping the price to something ending in 9, prices are rounded up to the next even number. So, instead of $9.99, the price is $10, and so on. A 2015 study showed that prestige pricing works because psychologically, the rounded numbers look right to the consumer’s brain.
Buy one, get one free is a popular pricing strategy. Free sells, and buying one and getting two appeals to the greedy side of human nature. Variations on this include, buy 3, get one free; buy one, get the second for a penny; or buy one and get 50% off your next purchase. Discounting is good strategy as long as you can make your necessary or desired profit margins.
One more thing: if you try to undercut your competition on price, you may run yourself right out of business. A discounting strategy can be detrimental to your cash flow over time, so use discounting sparingly. Create and sell better products or affiliate market better products that can command higher prices and you’ll build a growing business that will reward you handsomely.