How to set pricing for long-term profitability
Repeat customers contribute to long-term profitability. To keep customers coming back you need to employ the right pricing strategy. What is the right strategy? Here is what to consider when setting prices:
Focus on value pricing
Value pricing is not the same as discount pricing. Rather, value pricing is pricing a product or a service based on what the customer believes it is worth. Price Intelligently puts it this way: “Customers don’t care how much something cost you to make or your competitors, they care how much value they’re receiving at a particular price.”
Figuring what your target customers believe should be the right price takes a lot of time and research. Because of this, many companies steer clear of value pricing. However, by focusing on value pricing you will be able to increase your long-term profitability, gain customers, and develop a following of loyal customers.
Neil Baron wrote a great article for Fast Company on how a dead squirrel taught him about value pricing. The long and short of it, according to Baron: “Many companies worry about the commoditization of their offerings and their inability to justify premium pricing — but if you figure out how to take care of your customers’ ‘dead squirrels,’ you’re golden.”
Make pricing flexible
Once you have determined your value price, don’t be rigid. Rather, set the price with a modicum of flexibility. Even a little flexibility will go a long way in terms of being able to adjust to customer’s needs and the needs of your company.
Complex pricing not only creates a hosts of challenges, it also undermines the credibility of your company and turns off/away customers. Your pricing should be fair, direct, and easy to understand – both internally and externally.
By keeping these things in mind, you should be able to create a pricing strategy that will attract and retain customers – essential components of long-term profitability.