Pricing structures play a key part in your ability to turn a prospect into a customer.
In this article we’re going to deep-dive into a number of strategies that expert marketers use to achieve this.
Know Your Audience
It all starts with knowing your audience.
You’ve created a product or service, and you want to maximize the potential of it. Or, perhaps you’ve been doing business for years, but have struggled to boost sales, or perhaps to even get a foothold in your niche.
Truth is, it doesn’t matter where you are in the process at the moment. Your goal should be to develop a successful pricing strategy that positions you above the competition.
And the good news…
It’s not as tricky as it sounds.
The key is knowing your market and being able to determine, how you can use pricing as a positioning tool.
For example, brands like Dollar Tree (or Poundland in the UK) use pricing as a positioning tool to encourage people to shop with them in order to save money. This is known as penetration pricing.
Then there are companies who have positioned themselves as a premium or luxury brand. They might incorporate scarcity elements into their marketing, and their pricing will reflect that. Brands like Rolex or Luis Vuitton are examples of this and the practise is known as “price skimming.”
And finally, there’s what’s considered to be middle-of-the-road pricing strategies. These often involve graduated pricing in the form of upgrades, or simply positioning your offer so that it appeals to the large majority of prospects who are stuck in the middle of two main price points.
There are many different ways you can utilize the power of pricing as a positioning tool in order to solidify your brand and maximize your income.
It begins by making the decision what your point of entry will be, and choosing a pricing model based on your product or service.
And finally, understand that whatever price point you choose, you will be alienating certain customers.
And that is alright!
Whether you go in with a lower price point, a higher one or somewhere in the middle, it’s impossible to be all things to all people.
Business owners and companies who try to please everyone often find their profits in decline. If the focus is too broad, and you haven’t identified your main audience, you’ll always be chasing the sale.
But, the more you know your audience, the easier you will find attracting customers and building a loyal tribe.
When you know what is most important to them, you can quickly align your marketing message to highlight those benefits.
And the better your marketing message resonates with that audience, the easier it becomes to reach them in future campaigns.
In 2013, Nathan Barry quit his job as a computer programmer to start his own business. He created a SaaS platform to help bloggers, podcasters, and authors.
His profits were meager, and people continued to tell him he’d made a mistake…
It was clear that he had to decide whether he wanted to quit or work even harder. He chose the latter.
Today, his company, ConvertKit.com, has over 50 employees and an annual earnings statement of over twenty-four million dollars!
How did he get there?
He positioned his product (which is just another auto-responder) to focus on one specific targeted group who saw immense value in his service and then priced it accordingly.
Let’s dig into some of the better pricing strategies that marketers use to get market penetration…
The B.L.S Formula
Your customers will have a bunch of different wants and needs, even within your target demographic.
The tighter your target audience, the easier it is to create a compelling marketing messages that resonate with your customer base.
You’ll know what they are most interested in, what is most important to them, and how best to cater to that.
So how do you get started?
Regardless of your market, your prospective customers will likely fall into one of three basic categories:
Benefits, Logic, and Scarcity.
The B.L.S. formula helps you figure out how to market to each of these three types of prospect.
- Benefits: Is typically driven by emotion and the vision of a better life or gaining a solution to a problem. Justifies their purchase with logic.
- Logic: Focuses on hard data, stats, facts and other forms of proof. Particularly fond of case studies and before & after marketing campaigns.
- Scarcity: Is driven by the fear of losing out. Responds well to urgency in marketing messages and in being part of something special.
When you are figuring out how to market to your prospective customers, the first step is in thinking from their point-of-view.
- What are the benefits that will stand out to them?
- What is most important to them?
- What are they hoping to gain from your product or service?
When you create a product or service, it’s not always easy to form a clear picture as to all that it encompasses and how it will benefit people in different ways.
After all, we’re close to our own projects. We’ve put a lot of time and energy into creating them and they are like our babies. So what we often believe is the key benefit or the U.S.P isn’t always what resonates best with our audience.
So, the easiest way to create a marketing message that will appeal to the majority of your market is to try to see things from their point-of-view.
Consider the benefits, features, logic and scarcity points and how you can utilize these elements to improve outreach and maximize conversion rates.
Here are a few things to keep in mind:
- Features: What are the different parts or aspects of the product or service?
- Benefits: What do these parts or aspects do? Will it save time or money? Will it prevent pain? Will it help to remedy a specific situation?
- Logic: What facts, case studies, statistics, and social proof stand behind the product or service?
- Scarcity: Is there an urgency associated with the product or service? Is there a limited quantity available? Will the doors close after a certain time? Is the product on sale?
Once you identify the answers to these questions, you’ll be able to take that information and apply it to your marketing process.
Setting Yourself Apart
Your product or service is probably not the only one on the market. This means you’ll need to do some work in highlighting the differences and pointing out why someone should purchase your product over another.
Even companies with an incredibly strong product and brand still need to dig deep in order to position theirs in a way that motivates customers to take action.
They achieve this with a U.S.P.
So, what is a U.S.P exactly?
U.S.P: Unique Selling Proposition.
Without a U.S.P, your product will always struggle to compete in your market. It won’t stand out and therefore it can’t leave an everlasting impression in the minds of your prospects.
Your product already has a U.S.P, your goal is to simply identify what that is, and highlight it in your sales pitch and marketing message. It also becomes part of your positioning strategy.
It begins by evaluating your product objectively, similarly to what we covered in the previous chapter when identifying the strengths of your product and evaluating it from a customers’ perspective.
- How can it improve someone’s life?
- How can it help your customer?
- What does it offer that other products fail to provide?
- Is your product easier to use than the competitions’?
Before you can create your U.S.P, you need to know your target audience. What is most important to them? What are they struggling with the most? How can you truly connect to your target audience? What is their greatest challenge?
Again, the better you know your audience, the easier it will be to develop a U.S.P that means something to them.
There are many different strategies for creating a USP for your product. Dan Kennedy’s method for identifying a USP is in answering the question, “Why should I choose to do business with you versus your competitor?”.
The very reason why you created a product or service in the first place could hold the key to defining your U.S.P.
Think about how your product is different than others on the marketplace, how does it add more value?
How does it address a question, concern or simplify a process, such as reducing a learning curve, saving your customers time or money.
Your product USP is the driving force behind defining value and creating a recognizable brand in your market.
There are businesses who have so carefully highlighted their USP that they can charge twice what their competitors do, and still sell out every single time.
Because the truth is, if your target audience recognizes you as the premium source in your niche, it doesn’t matter how many companies out there are selling the same thing for a lower price.
The Value Stack Strategy
Question: how much should you charge for your product or service?
Deciding how to price your product depends on the type of customer you are hoping to appeal to, whether you are focused on high-quality clients who are comfortable paying premium prices, or you plan to appeal to a wider audience with lower price points, but it goes behind that.
Structuring a price point and positioning your offer so that it makes sense to a customer requires selling the benefit to the right audience.
Your goal is to get them excited about what you are offering and demonstrating your ability to provide them with exactly what they’ve been looking for.
One of the easiest ways to multiple the value of your product so that it’s perceived value is greater – thus appealing to a wider audience without devaluing your product – is by utilizing a Value Stack Strategy.
You’ve likely seen this in action. A business bundles in additional bonuses, savings or even products at “no extra cost”, adding value to product while highlighting the savings.
Example: Product A is priced at $97. Using the Value Stack Strategy, you would offer Product B, valued at $57, as a free bonus – increasing the value from $97 to $154.
The Value Stack strategy is an easy way to persuade customers that they are getting the best deal possible, while appealing to both logic groups as well as those driven be benefits and scarcity.
When it comes to your products and their overall perceived value, pricing matters. Simply lowering your price to compete in your market could ultimately backfire, as it sends a message that your product may not be as valuable or as high-quality as others.
You never want to compete on price alone.
Whereas, on the other hand, pricing your offers too high may deter even the most dedicated customers who are on the hunt for quality products.
The value stack strategy simply puts you in a better position to compete.
Remember, before you decide on a specific price for your product or service, make sure that you do enough research to fully understand your product’s worth to the consumer.
You do this via market research, analyzing top sellers in your niche and determining what the level of resistance is likely to be based on different price points.
Remember, you can always change your prices later. It’s important to always test all variances of your marketing, especially price structures.
Just the same, keep in mind that it’s often easier to increase a price later, than it is to lower it without upsetting customers.
The GAP Strategy
To find the perfect price point for your product or service, you’ll have to do a bit of market research.
This involves analyzing top sellers in all 3 price groups: the most expensive, the cheapest and those that fall in the middle.
We call this “filling the gap”, hence the GAP Strategy.
The GAP strategy is a great way to fill the void. You’re catering to the market that sits between one end of the price spectrum and the other.
In many cases, this group is far easier to market to because they’ve already passed over the products that are too costly and out of budget, as well as the ones that are priced so low they aren’t positioned as being high-quality or valuable.
Begin by researching your competitors who are positioned on a high-price point platform.
Then, look for those who are at the lower end of the spectrum.
Finally, find what that middle ground is and assign a price point to your product based on hard data.
You can find competitors on all the major platforms and marketplaces, such as Amazon.com, Facebook, Instagram and Google.
Take notes, specifically the benefits highlighted in their p products and of course, their pricing strategy.
You’ll quickly create a snapshot of your entire market, ranging from the highest price point to the lowest. Once you have those numbers, determine the average price point, and fill that gap!
Your next step will be to justify your price point and you do this by highlighting the benefits and the differences in your offer.
Again, think from a customer’s point-of-view and study your market well enough to know what their triggers are and how best to persuade them into taking action.
Learn the marketing language that will resonate with them and always focus on how your offer will improve their life.
In the words of Bill Gates, “Only a few businesses succeed by having the lowest price.”
Your goal isn’t to undercut the competition; it’s to stand out in your market by positioning your business so that it has a clear focus and a price point that makes sense.
Loss Leader Strategy
One popular strategy that will help you grab attention, secure a foothold in your market, and remove all barriers when trying to persuade a customer to take a chance on you, is by employing the loss leader pricing strategy.
This is where you sell the initial product at a low price to garner the attention of your market, and then upsell other, higher priced products or services.
The key is to have a sequence in place so that you’re able to guide a customer through your funnel, starting with your lowest-priced offer and then finally, to your highest-priced one.
The loss leader strategy only works when you have a series of products, so if you’re just starting out you’ll want to build up a backlist of offers first and then implement the loss leader into your marketing message.
You see this strategy employed in almost every market. For example, authors will often price book 1 in their series at .99, with every other book priced at $3.99 or higher.
This lowers the barrier, inviting readers into their funnel with minimal risk. It makes it easy to persuade those who are new to the author that they should take a chance on them, and in turn, as they complete book 1, they are immediately directed to purchase book 2 and so on.
The loss leader strategy is also a great way to test niches as your market won’t have as high expectations when purchasing at a lower price point.
This will mean lower refund rates and support requests, allowing you to focus on creating other relevant offers that can become part of the funnel.
Qualify Your Customers
With sites like eBay, Alibaba, and Amazon, you can watch as companies’ wage price wars against each other.
Sometimes, prices get so low that profit margins are in the pennies!
But, is this pricing strategy viable? Does it make sense to your business, or will it exhaust your resources and take more time and energy than it’s worth?
It’s not always wise to cater to consumers who make their purchases based on a lower-price point alone, with no concern about quality or overall value.
Quite often, you may find that you are spending a lot of time dealing with customer support for lower-end products and no room for increasing the value of that customer through upsells or upgrades.
While almost everyone goes through a point in life where they purchase something solely based on price, you don’t want to cater to just that group of consumers.
However, if you compete a level of value where you are justifying your price and the time you spend on customer support issues, then you’ll be in a better position to grow your business and maximize the time you spend on it.
And as long as your product or service delivers as promised, you will deal with fewer complaints and refunds.
In addition, you should always be split testing marketing messages and price points, so you can determine what resonates with your audience.
Incorporate Social Proof
Social proof is everything. It reassures potential customers that they will benefit from their purchase, it positions your business in a way that appeals to the majority and it helps to highlight the benefits of your product.
The key is to create a clear and honest marketing message that is based on real value.
You want to avoid inflating the value of your product because you won’t be able to follow through on your promise. And once a product or service receives a negative reputation, it’s very hard to come back from that.
On the other hand, positive reviews and testimonials from satisfied customers can skyrocket your sales and simplify your task of persuading your market that your product is worthy.
This is another reason to consider focusing on high-value clients. If you can deliver on your promises, you will find less negative reviews than you would with those who simply bought your product due to its low price.
Some of the easiest ways to garner positive reviews, testimonials and case studies is to provide excellent customer support. You’ll want to install a help desk or offer access to a private group.
Make sure that you’re available to those who have questions prior to the sale, but also to those who have already followed through and made the purchase.
Set times where you are available so that you are able to condition customers to better understand what to expect.
Follow up with email campaigns that ask for feedback and always be open minded about how your product or service can improve.
Survey your audience by sending out regular polls.
The satisfaction of your clients will not only reflect in your reviews, but will dictate the number of return customers and customer referrals.
To build customer loyalty, you want to create a fantastic experience for your customers from start to finish.
One company that is known for having excellent customer service is the shoe company Zappos. They focus their attention on providing an outstanding customer experience so that people refer their business and of course, return to them again and again.
Because the Zappos focus is so high on the customer experience, the company boasts revenues of over $2 billion a year and in 2009 was purchased for $1.2 billion by Amazon.
By excelling at customer service, Zappos is not only bringing in new clients, but they are also reducing the number of returns and refunds.
Pricing and positioning begins by knowing your audience. The closer you keep a pulse on your market and the better you understand what potential customers are looking for, the easier it will be to determine the best price point for your offers.
Never focus on trying to satisfy everyone. Not only is it impossible, but you’ll spend a lot of time and energy chasing the sale. Instead, work towards identifying your core audience and creating offers based on their wants and needs.
Avoid competing on price alone. Regardless of what pricing strategy you decide on, you should always focus on highlighting the benefits of your offers so that pricing is secondary.
If you create a marketing message that resonates with your core audience, you’ll be able to maximize conversions regardless of your price structure.
And finally, always work towards improving your customer’s experience.
I hope that this has helped you better understand your options in terms of pricing and positioning.