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Pricing Your Products and Services for Ultimate Growth
by Michael Fleischner - MarketingScoop.com 2007

One of the most challenging things you can do as a marketing professional, entrepreneur, or business owner is to price your products appropriately. Often times, individuals have no real strategy for pricing products or understand the perceived value that pricing can create. In this article, I’ll share my 12 year of product experience and what I’ve learned by pricing dozens of products – pricing them to sell.

When considering how to price a product, there are a number of methods for arriving at a starting price. The most popular include zero sum pricing and competitive pricing. Those who price their products using the zero sum method generally begin at zero, add all their costs including manufacturing, overhead, and so on, plus some type of margin to reach an initial price. The margin used in this calculation is based on industry norms or existing margins on similar products.

Competitive pricing is a method where you evaluate the products your competitor is selling and at what price. If your product or service is the same or similar, you’d want to price your product in the same general area. If your product is different, you’d adjust your price up or down based on features, benefits, and value derived.

Another model is called premium pricing which is used when considering a competitive pricing grid. Companies like Cadillac use premium pricing. This method charges ‘top dollar’ for a product that is of better quality or perceived quality. Rolex is another example. It doesn’t tell time any better than a Seiko but it costs much, much more.

Once you’ve determined your preferred pricing method, the next step is to develop multiple pricing options. Too often companies stop with the selection of a pricing method. The top marketing professionals know that the only way to optimize price is through tiered pricing and testing.

There are way too many individuals still pricing their product based on gut feel. The dialogue usually goes like this, “How much should we charge?” “I don’t know, what does competitor X charge for it? $39.95? Let’s charge $34.95 so we can out sell them”. Don’t laugh…this is how 90% of the products are priced out there.

This method would be okay if after you evaluated your costs and were able to charge less. However, using pricing options allow you to charge both more and less for a given product compared to your competitors. Let me explain what I mean.

To illustrate pricing options, let’s use a popular example, the fast food restaurant. Fast food establishments use tiered pricing all the time. Would you like the single hamburger, double hamburger, or the triple? Smal, medium or large drink? Small fries or large? Regardless of your industry, product, or service, you must give the consumer options.

A number of my clients have said that they can’t offer that type of pricing. When I ask why, the answer is often that their product is one size fits all. If that’s the case, determine how you can offer your product in increments. An attorney that charges by the hour can offer his services by the hour or on retainer. A landscaper can add-on additional services such as weeding, edging, or trimming. And an online publisher can provide a basic or premium package. It’s all in the mind set.

Conclusion
When developing a pricing strategy, understand the direct and variable costs associated with your product, the competitive landscape, and the varying needs of your market segments. Only then can you develop a winning pricing strategy. Choose the strategy that you believe resonates with your market and test, test, test. Be sure to offer tiered pricing to give your prospects options and you'll soon be working at the optimal price.

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Michael Fleischner is an Internet marketing expert and the president of MarketingScoop.com. He has more than 12 years of marketing experience and has appeared on The TODAY Show, Bloomberg Radio, and other major media. Visit MarketingScoop.com for more free marketing articles.


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