I’m writing this post because I’ve been faced with a lot of ladies lately that are making the mistake that most of us women do in business and are basing our decisions off of how we feel instead of what’s best for our business. Don’t beat yourself up if this is you, as women we are naturally wired to “care” about everything and make decisions based off of our nurturing spirit, but in business this often times puts us in a very difficult situation that is hard to recover from. So today I want to give some simple pricing strategies for my women entrepreneurs that will keep you from getting trapped in this place, and if you’re already in this situation, how to get out.
Simple Price Strategy for Women Entrepreneurs
Now if you look up pricing strategies online from some of these major universities they will give you a very outlined path of how you set up your pricing, but if you’re not a marketing professional you’re going to run into some terminology that you aren’t very familiar with, which is why I speculate so many of us throw spaghetti at the wall and hope it sticks as it relates to our pricing, because we get overwhelmed and say screw it I’ll take a stab at it and hope it works. Or we base our pricing off of what someone else in the industry is charging, not knowing what their costs are or the value in their service, which is also another terrible way to get yourself into trouble.
So what I’m going to do is take all that mumbo jumbo that you don’t understand, and make it simple for you. If you follow this process, whether you are just starting or working your way out of a hole, you’ll be able to effectively price your service off of value and cost, and earn the profit that you desire.
1. Do your marketing research and develop a plan
Now this is confusing for some, because a lot of people mistake marketing for promotion, and that’s just a small piece of the pie. When you’re Marketing the proper way, you’re studying the industry that you’re targeting for demand of your product or service, competition, cost, things in the environment that will affect the sales of your product or service, etc.
When developing your plan it’s most important to consider the following:
- Demand of your product and the curve for the demand – meaning the price and the demand for your product or service are going to be closely related. If your product or service is in high demand and your customers are not price sensitive, higher pricing may be feasible. However, if your product or service is in high demand but your clients or customer are price sensitive, then lower pricing may be necessary in order to meet your pricing objectives.
- Calculate the cost associated with production, placement and promotion – meaning how much will it cost to develop your product or service along with how long that cost will be associated with your product or service. Will costs go down as the demand increases? What channels will you need to utilize in order to promote your product to the right audience and how much will that cost, etc…
- Environmental factors such as competition, legal barriers, seasonality and the like.
2. Determine your price objectives
When you’re setting your pricing it’s important to understand what you want to achieve with your pricing structure. Are you looking to gain immediate profit, move a lot of products, or create long term sustainability?
When considering your objectives consider the following:
- Current Profit Maximization seeks to gain the most out of your current profits. This objective may be used if you’re looking for an immediate profit and return on investment of cost and promotion. While this objective can be great for short term gains, it main not be the most suitable objective for long term profitability.
- Current Revenue Maximization seeks to maximize the current revenue (cash flow) without regard to profit margin. Well Kae what does that mean? It means that your goal is to create more long term profitability and possibly with lower cost. Your mindset here is sell at a price that will generate more demand even if I’m not earning as much in the beginning.
- Maximize Quantity seeks to sell the most products or gain the most customers in an attempt to lower long term costs that will be associated with your demand or experience curve. Meaning your costs may not decrease over time, so your goal is to sell more upfront so your costs won’t hit you as hard later. Make sense?
- Quality Leadership seeks to sell higher value in quality of product or service and justify pricing based on the quality.
- Partial cost recovery typically seeks to regain some of the cost for the product or service but the emphasis is not on profits. This is typically an objective when other services or products are offered and they are profitable, but this particular product or service may not serve the same purpose.
- Survival objective is normally when you are priced to stay afloat. Commonly used in seasonal products, and is very temporary. It keeps you relevant in the market but pricing is not to gain a profit.
- Status quo seeks to blend in with the crowd and obtain a reasonable, comfortable profit. Typically used when competition is high and the business isn’t seeking to go into any pricing battles with other companies. Customers are typically price sensitive but loyal.
3. Set the strategy into place
There are a couple of strategies that can be used when first coming to market or when you’re re-evaluating your pricing structure that can be very useful.
When putting your strategy into place, consider the following strategies:
Skim Pricing attempts to obtain the cream of the crop as it relates to demand. Pricing is typically higher because the customers are not price sensitive to the cost of product of service.
It’s usually a good idea to use this strategy when:
- Demand is expected for the product or service and the customer base isn’t sensitive to price
- Large cost savings are not predicted at higher volume of sales, or you can’t determine what the savings would be based on various circumstances
- You don’t have the capital to fund distribution or production up front so the costs are passed on to the customer so the profit margin is initially very low.
Penetration pricing is closely in alignment with the objective maximizing quantity by means of lower pricing.
It’s most appropriate to use this strategy when:
- Demand is or is expected to be high but customers or clients are highly sensitive to price
- Large cost savings are predicted as volume starts to increase
- The product is something that will gain in popularity fairly quickly
- Competition is high or expected to be high
4. Determine your pricing methods
There are different methods that can be used to sell your product or service and they are as follows:
- Cost Plus Pricing sets the price at the cost of production plus a specific profit margin, popular in retail
- Target Return Pricing sets pricing to obtain a target return on investment, ie you want to gain a 50% return on investment
- Value-based Pricing sets pricing based on value of the product to client or customer based on a different product or service
- Psychological Pricing sets pricing based on popularity of product or service, industry standards and what the client or customer thinks is fair.
After setting this process up you can then go into your marketing calendar and determine sales and pricing for sales based on a different strategy that I’ll talk about in another post.
Now I know I said these strategies were for women, but they are for anyone who is struggling with trying to determine the price for their product or service. This process allows one to think objectively and eliminates any emotional factors that may get in the way of making a sound decision for the pricing of your product or service.
I hope this helps bring some clarity to the huge price hang up. If you have any questions or comments feel free to leave them in the comments below.
Hope you enjoyed, until next time!