Pricing is a critical part of any marketing strategy–one of the 4Ps in fact: pricing, place, product and promotion. A lot goes into creating a pricing strategy that resonates with your target market and balances out the other elements of the marketing mix. To simplify what can be a complex formula, break your analysis into manageable steps to set yourself up for success with a pricing model that fits your product and market.
Set measurable goals
As with any endeavor, setting your desired outcomes upfront allows you to measure success throughout the process and at the end of the exercise. It’s possible that your goals may change throughout the process. However, setting a benchmark allows you to stay focused and is ultimately more efficient. Are you looking to reach a specific ROI or sales target? Maybe you want to establish yourself as a price-leader (or on the flip side, a premium offering.) Perhaps you want to improve the velocity of the procurement phase of your funnel. Whatever your goals are, be sure to set measurable targets to gauge success.
Identify your target market
An important factor in determining how to price is your market. Beyond just demographics and their buying potential, you’ll also want an idea of how your target market responds to price. They may be more or less price-sensitive depending on the industry. Niche offerings tend to draw in less price-sensitive buyers whereas a heavily competitive space is going to demand that you prove your value upfront: either by offering competitive pricing or by dramatically differentiating yourself from the competition. Knowing what you’re up against is a key factor in determining your pricing strategy.
Identify & categorize competitors
Once you know what the market has to offer and are familiar with consumer behavior in the space, you’ll want to acquaint yourself with your competitors. Who are you up against and what is their approach to pricing? Are they a direct competitor or does their product/service just overlap yours in some areas? Knowing this information allows you to determine how closely you should align or differentiate from their strategy. Identify the players in the space and keep track of how they are pricing. Some things you’ll want to outline:
How does their pricing compare to your own? (If established)
How does your product compare?
How are they scaling prices? Is there a volume discount? At what levels?
What’s included beyond the product/service itself (shipping, warranties, support, etc.)
In some cases, your competitors may not disclose their pricing publicly. If this is the case in your industry, you’ll need to dive a bit deeper by going undercover as a prospect or outsourcing a secret shopper. Here are a few questions you can ask competitors to get you started:
Is it a subscription? Or a one time purchase / perpetual license?
Do you offer special terms for a pilot or proof of concept?
Are there any guarantees? Refund policies?
What is the minimum duration of the subscription?
Do we need to pay extra for any additional users? What is the per-month/year-per-user cost?
Do we pay extra for different feature sets?
Are there additional costs for support or warranties?
Are there any other discounts I should be aware of?
Are there different prices for different geographies?
Determine costs & analyze product value
So now that you’ve established the end goals, analyzed the current offerings in your space, and outlined your competition’s pricing strategy. What’s next? Given all the known factors, you should now be able to determine what it is going to cost you to reach your end goals. Be sure to leverage competitive intel to negotiate the best deals with your suppliers. This is also a good time to finalize what your value proposition will be. Will you strive to offer the lowest priced option or establish yourself as an innovator in the space, commanding a premium? It may be helpful at this point to survey some of your customers (or potential customers) to get a better idea of what matters most to them when making a purchasing decision.
Once you have collected your intelligence it is always important to present that information to leadership or those responsible for the pricing strategy in a way that conveys the key takeaways and next steps. Most teams appreciate a graphical representation accompanied by a more in-depth analysis summary. If you haven’t already, feel free to download and customize the Kompyte Pricing Analysis template.
Create a few hypotheses & start testing
Once you’ve decided on a few different strategies that are a good fit for your brand, you need to test them. Ultimately, this will be how you measure your success. Did you complete the goals you set out to achieve (win rate, velocity, average deal size, etc)? If not, keep testing elements you uncovered during your initial analysis. It may take several attempts until you land on just the right pricing, so don’t get discouraged.
Keeping your pricing analysis up to date
Over time, your competitors will also test their pricing methodology. This is where it will be key to consistently track your competitor’s movements at least once each quarter. The great thing is, you’ve already got the framework and historical data established. Keep an eye out for changes in their pricing, promotional strategy and product offerings, so you can keep iterating on your testing strategy. Or, get in touch if you would like to see how you can automate your research so you can spend more time making things happen.