Finance
6 Pricing Strategies For Small Business Owners



One of the most costly blunders you can make as a small business owner is getting your pricing points wrong for the products and services you sell as well as not effectively communicating the value of your offering in a way that makes customers happy to pay your price.


When you make a mistake in pricing, you’re effectively tarnishing your reputation and your profits. Effectively mastering pricing strategy and effective communication of your value proposition will ensure you’re building a sustainable business with maintained, good profit margins in a world of stiff competition and constant commoditisation. 


Let’s take a look at some methods which you can implement to bolster your competitive edge by improving your pricing efforts.


1. Manage your pricing cycle. 

Several business owners allow their pricing points to be dictated by external factors such as competition, fuel prices, and seasonal events. Of course, these elements do have an influence on your business, but we recommend adopting a long-term proactive view on pricing your products and services over time. 


Start by determining your price points as per factors such as input costs, customer price sensitivity and your value proposition. Moreover, also factor in how you will position and maintain your price in the long-run as your products and services, sector and customer needs evolve. It’s also an excellent idea to continually communicate your value proposition to your customers. 


2. Find subscription models that work for you. 

Offering your clients access to a subscription model for your products or services on a monthly basis is a tried and tested business model. These take the form of video streaming services, accounting solutions, online education, gym memberships and more. Try to determine if your business has any elements that could take the form of a subscription, preferably in a fashion where if customers use more of it, it won’t add to your business costs.


By implementing a process of this nature, you’ll be able to develop a stream of predictable revenues and give customers value for money and a clear forecast as to what they’ll pay.


3. Create a robust price architecture. 

We advise taking the time to carefully consider your products and services and how they are positioned in relation to each other. Ensure that you develop logical pricing steps and value, which make it intuitive for customers who desire to trade up until they hit your highest price, which they’re willing to pay. 


For instance, not everyone can afford Apple’s flagship iPhone or Samsungs top-tier Galaxy handset. However, both these manufacturers offer features and prices aimed at gleaning higher transactional value for each model.


Furthermore, a sound pricing architecture also allows for continuous development and improvement to the top-tier product, as high-end features and tech tend to trickle down to lower-tier products, effectively bolstering value and supporting inevitable price increases over time.


This is one reason Apple has kept pricing moderately stable for its devices, while many Android manufacturers are under constant pricing pressure.


4. Decoy prices. 

Effective pricing is all about psychology and understanding the many irrational ways in which we, as humans, make decisions. An example of this would be reframing a price by comparing to another option, which often leads to the customer going for your preferred choice.


Restaurants are far too fond of this trick, they’re aware that many customers will opt for the second most expensive wine if you have a significant price gap between it and your most expensive bottle, and naturally, your profit margin on the second-best will still be notably lucrative. 


5. Carefully consider bundled options vs “a la carte” pricing.

Depending on your products or services, creating bundles is an excellent pricing strategy. Let’s use a fast food restaurant as an example who might offer a burger special:


  • A high-value burger which is the most expensive part of the offering. 

  • An additional side item such as chips or salad, which customers will see as a nice-to-have item instead of the main attraction, which is cheaper for the restaurant to produce. 

  • An extra low-value item to sweeten the deal, like a soft-drink or coffee. 


Bundles of this nature offer several benefits:


  • They create a perception of value for money for mass clients with standard needs or tastes.

  • They effectively anchor prices for a la carte products for niche customers with specific tastes and needs. 

  • They bolster the transaction size without necessarily increasing costs. 


An a la carte pricing system gives context to bundled deals and also provides opportunities to up-sell customers who desire something different from standard bundles. 


6. Be smart when communicating price increases. 

Effective communication of price increases to customers is perhaps one of the most challenging aspects of pricing. If you fail to be transparent, customers might feel ripped off and could even become hostile to your brand. On the other hand, if you’re too direct, they might start focusing on the cost as opposed to the value of utility of your offering. Let’s take a look at some best practices when communicating price increases:


  • Focus your communication efforts on the new price as opposed to the old.

  • Ensure that you reinforce the value offering, especially if you’ve historically made changes which were popular as well as additions to your products. 

  • Announce your price increase just before it takes effect to effectively decouple the new price from your client’s purchasing decision.

  • Should your market be price sensitive, consider downgrading your package size or features to keep your price constant.

  • Look for ways to add value without increasing costs, for instance, upsize container sizes as you raise prices. Cineplexes do this often with their cheap commodities such as soft drinks and popcorn, where slightly bigger portions don’t affect their costs.


  • strategy
  • customer acquisition
  • business competitors
  • pricing
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