How do you charge a premium? 3 simple ways to decide your pricing
For many new business owners, pricing structure and offer design is probably the most critical question besides “Where to find my clients”. The answers to it can be as complicated as any marketing specialist claims, but we will narrow down to three key aspects to start with.
- Competition Analysis: This is usually benchmarking with existing service/product and heavily applied in saturated markets. You compare to other similar providers and see where the price point sits. While this may be the first sensible option to many business owners, it is not sufficient to decide for an innovative offer as the paradigm shifts. For instance, if you create a “dog cuddling” emotional support service, it can be tough to anchor the right price at the start. Using a marketing survey on the target audience and launching with a trial offer will be a steady win instead. You can add a cap based on the unique differentiation and challenge the market later on.
- Cost Analysis: For a heavy “manufacturing mindset”, this could be a go-to approach. Business starters usually look at the cost, investment, overhead, all the spending and wish to breakeven in a year or even earlier. In principle, I do agree with the cost-based formula in financial decisions. However, besides the current operation cost, we should not neglect the investments for future R&D and operating cash flow. The cost of your offer includes your time, energy, experience, skills, knowledge, effort, all the resources you have gathered throughout a certain period of time. It will be undervalued if you only consider the cost of day to day operation without taking into account what you have built up for your strength and value.
- Value based positioning: This is my favorite, and also what many entrepreneurs are not used to, as it is more abstract. When I had my strategic marketing module at Bath MBA, the professor shared a famous metaphor: Customers want to buy a hole in the wall, not a driller.
People don’t really care about your features or benefits. What they really want is the solution and this tends to be quite emotional, even though we like to think we are quite rational (but we really are not! At least not all the time). When the emotion of solutions around pull (leaning forward to your desired outcome) and push (running away from pain) are strong enough, we want to buy it.
The meaning of the solution is the value. If I am taking a French class, then the value to me is not a 60h crash course. It is the ability to greet a French colleague and feel closer to the work relationship.
Be very clear about the transformation your offer brings and how your customers perceive value. If solving certain problems and pain points means so much to your clients, the perceived value naturally goes higher. As a result, they are more likely to accept a premium service/product.
I have talked about #feature #benefits and #advantage #value with my coachees and business partners. However we seem to never exhaust the topic. The list could go on and on but at least you know where to start. Receive “Value Checklist” to assess your offer or book a strategy call to get tips to move your business forward.