(PRWEB) November 04, 2012
Growthink - a leading entrepreneurial consulting firm that has helped thousands of clients develop business plans – has revealed business pricing strategies to help boost the bottom line. These different approaches, when used in timely and efficient ways, will help to maximize profit in any consumer environment.
Dave Lavinsky, co-founder of Growthink, says, “Normally, if I were to ask an entrepreneur or business owner how they could double their sales, they'd propose increasing their sales force, trying to get customers to buy twice as much, or doubling their advertising budget. But often, a superior strategy can get the same results with less effort. In this case, your pricing strategy might be this superior strategy.”
There are several pricing strategies to choose from when offering a new product/service or trying something new with one you're already selling:
1. Price Testing
Making even minor price changes to find the "sweet spot" where the most people will buy can massively increase a company’s results. Lavinsky elaborates, “Think back to economics class, when they covered the Price Elasticity of Demand. Now, if you're still awake, remember how you might raise your product's price down or up and lead to an increase in sales.” If a price it too high, margins will be great, but this will generate less revenue because fewer people buy it. Don't price the product too low, for obvious reasons, but don't be afraid to try going lower (even temporarily, like during a promotion) and observe the results. A business should test pricing a number of times until they find the sweet spot that works the best for both customers and the bottom line.
2. Based on Competition
An entrepreneur should compile the top competitors' prices then determine if they are positioning their products to be on the low end, high end, or right in the middle, and compare that with their own positioning strategy. Also assess whether the competitor’s product or service is of higher or lower quality. A business should consider market trends and their product or service's value, and either price it a little under or a little over that of the competition. Having one or two advantages over the competition can lead to more sales, especially when the price is near the same as those with fewer benefits.
3. Based on Cost, Plus Markup
In this strategy, the business will determine the product or service's costs to create and fulfill, and then choose a price above this amount based on the gross profit target when selling each item.
4. Loss Leaders
Loss leaders are products or services offered at or below your cost, in order to attract more first-time customers who will hopefully will buy higher-ticket items or a variety of items over time. The hardest sale to make is the first one, so sometimes it's wise to make the offer so irresistible (by undercutting the competition) that a business may start a relationship with more new people, knowing that the money will be recouped in the future.
Lavinsky adds, “My advice is to also have a plan for what you will upsell them, when, and how. Ideally, it will be as soon after the time of the first purchase (or perhaps as an upsell or cross-sell at the same time as the first transaction), so your cash flow is not affected as much.”
5. Higher Perceived Value
Some products come out of the gate with higher prices, to take advantage of the premium image and psychological positioning. It’s important to make sure the quality really is high, though it doesn't have to be the absolute best product on the market. A business should never just arbitrarily raise the price of existing products, because people will note the change and not see the justification for it.
6. Closeout prices
Also called "liquidation sales," is a good strategy with excess inventory. The goal here isn't to generate the most profit - it's to minimize the costs of continuing to store the items, or to throw them away. Though it isn't a long-term strategy, it help with a cash flow crunch when needed and/or clear out old inventory.
7. Quantity discounts
This is a way to reward people for making larger purchases. Offer discounts on bulk purchases, such as "Buy two, get one free." Or, make special deals with the repeat customers who bring you the most volume.
8. Bundling discounts
Like the above, but applicable when a customer buys several different products - not several of the same ones. A business might offer these bundles and their pricing at the time of the sale to sweeten the deal, or make it the focus of a marketing campaign. Some speakers and trainers package together a group of related books, courses, and seminars so that the total price to buy now is much less than getting them all separately, or at different times. It's a great way to build urgency into an offer, if customers know they'll have to act now to get the savings.
This is a pricing technique used often with services or technical products like software and apps. With this, a business will sell the same product in two or three different versions. The trial version (often called Basic) is usually priced very low or is even free. Think of it as the loss leader that gets people in the door and wanting to expand to the full functionality that it offers (often called the Premium, or Gold/Platinum version). Then there’s the offer for upgrades or additional features and services at a higher price.
Lavinsky says, “A good example of this would be Tom's Planner - simple online software for making charts to schedule project-related tasks. You can create one chart with the free version (I used it to make a few charts, one at a time) or upgrade to the paid version where you can make unlimited charts. Think about how you might apply this to your products and services-especially the ones with monthly, recurring income.”
To help entrepreneurs with even more profitable marketing strategies, Lavinsky created an online training program called "How to Double Your Profits," available at: http://www.growthink.com/products/double-profits
Growthink provides consulting services and training products to help entrepreneurs start, grow, and successfully exit their businesses. To learn more about Growthink's business plan services, visit http://www.growthink.com/businessplan. Growthink also offers The Ultimate Business Plan Template, available on the Growthink website at http://www.growthink.com/products/business-plan-template and on Amazon.com at http://www.amazon.com/Growthink-Inc-Ultimate-Business-Template/dp/B0081SN1K4.