Without a strong understanding of your product costs and how it compares to similar products on the market, your marketing efforts may not be as effective as you hope. Product marketers are tasked with bringing pricing considerations into the fold when analyzing demand for their products, aligning pricing strategies with brand voice, and setting up a strategy for potential price updates in the future.
With so many experts offering advice on pricing techniques and best practices, it can be challenging to know where to begin (especially if you're new to working in product marketing). If you want to learn more about setting prices or want some expert-backed advice on how to improve your current pricing structure, this is the guide for you!
What is the product's true value to the end-user?
The product's true value to the end-user is defined by what that customer perceives it to be. The perceived benefits of your product will determine what your customer thinks about its value and consequently, whether they'll pay for it.
If you want to sell a product at a premium price—don't just say so in your marketing materials; show why this item is worth more than the competition's offerings. And if what you're selling has less value than the next cheapest option out there? Then don't feel guilty about pricing it accordingly.
Are there any psychological pricing triggers that can be used to nudge customers?
- Price endings. A product priced at $9.99 tends to be perceived as being less expensive than a similar product priced at $10, even if they're virtually the same price. This is because of something called "the left-digit effect," which basically says that people judge prices by their left digits. That's because it's the change in the left digit, rather than the one cent drop, that affects our sense of magnitude.
- Price anchoring. This refers to the tendency for people to rely on an anchor price when making decisions about whether or not an item is worth buying—and it's most effective when you have multiple options available for purchase! Let's say you're shopping online for a pair of shoes: you could look at several different pairs and see what their prices are before comparing them, but it would probably take longer than just seeing one pair with a high price tag and another with a low one; this way, your brain will automatically associate those two prices with each other instead of thinking critically about which pair looks best on its own merits (even though they might actually be identical).
- You're probably familiar with the concept of price framing. It's a marketing technique designed to get you to see things from a different perspective by changing how something is priced. For example, if you go into a store and find that everything costs $100, you might be turned off by the high price tag. But if you see the same products for $10, then suddenly those prices seem much more reasonable.
- On the other hand, contrast pricing is when you present your product as being more expensive or cheaper than another option in the same category—for example, you sell custom t-shirts and say that yours are made from organic cotton and will last longer than their competitors, which are made from synthetic materials. Contrast pricing works by comparing two options side by side so that one looks more expensive than the other; it also gives customers a clear idea of what makes one option better than the other.
How does your product compare to competitors' products?
Before you price your product, it's essential to do some research first. This includes analyzing your competitors' products and pricing. You should also check out the features offered by each competitor and reviews from customers who have used them.
In addition to analyzing the features and pricing of other companies, learn about their marketing strategies and community engagement efforts. Understanding how they are marketing themselves will give you a sense of whether or not they have traction in the market--and if so, what kind of growth potential does this indicate for them? Consider how well known each competitor is and whether or not it has established itself as an authority.
What is your profit margin, and what do you need it to be?
The profit margin is the difference between your product's selling price and your product's cost. It's the amount of money left over after you have paid for all your product's costs, including ingredients, labor, packaging, transportation, and storage.
The goal of any business should be to maximize its profit margins as much as possible. Profit margins are important because they determine how much money you can reinvest in your business—for example: hiring more employees or developing new products or paying down debt or buying more technology or building a better customer support system.
When you're pricing your product, here's a rule of thumb to keep in mind: profit margin should be at least 20-25% of the price. This is a good range because it means that you'll make enough money to cover your costs and still have plenty left over for marketing and other expenses. If there's a demand and you can justify a higher price point then the sky is the limit for you. I know of instances where companies are commanding even more than 100% of profit margins.
Are there any free alternatives available on the market?
There are many reasons why a customer might be hesitant to spend money on your product, but one of the biggest ones is the availability of free alternatives. If a customer can get what you're selling for free elsewhere, why would they pay for it? Here are some questions that'll help you figure out if there's any potential harm in allowing potential customers access to a free alternative:
- What kind of products does your target market typically buy?
- Do those products fill an important need? And if so, what makes them different from yours?
- Is there room in this market for another option—one that could potentially appeal to those who want something just like yours but don't want or can't afford it?
Is this a one-time purchase or a recurring subscription?
There are two different ways that customers can purchase your products:
- One-time purchase (e.g., one time payment)
- Recurring subscription (e.g., paying monthly or annually)
The reason this distinction is so important has everything to do with how much money customers will be paying over time—and how much money marketers will make from those payments in return.
Does your pricing structure and language line up with your brand voice?
Consistency is key when it comes to branding and marketing. Everything from your website to the copy on an email, to the way you talk with prospects, should be aligned with each other. If a prospect sees multiple pieces of collateral that don't line up, they might get confused or question whether your company has its act together.
Let's look at some examples:
- Your pricing structure should make sense for both you and your customers. You may offer two different types of packages for one product or service; however, those packages need to align with the value that those services deliver for customers.
- The language you use when describing your products and services should also align with their value proposition so that they're easily understandable by potential buyers. If someone doesn't understand why they would want this product then there's probably something missing in either their own understanding or your product description itself (or both).
How can you update your product's price in the future?
You'll want to consider how you can update your product's price in the future. For example, if you sell a piece of software that is regularly updated and upgraded, can users get access to these updates for free or for a small fee? Will any changes be tied to an annual subscription that auto-renews?
Sometimes price changes are forced upon us by market forces. If competitors start offering services with similar functionality but at lower prices than yours, it could be time for you to reduce your prices as well. Make sure that any new plans are easy enough for customers so they won't have trouble understanding them or feel uncomfortable buying from you again.
Pricing is one of the most important things product marketers do.
It's possible to sell an inferior product at a higher price than a superior one at a lower price if you know how to use pricing effectively. Pricing can be used to signal value, quality, scarcity, and other characteristics that are important for your customers—and it's also something customers pay attention to when making their purchasing decisions.
With the amount of thought and effort that should go into pricing your product, it's no wonder many product marketers consider it one of the most stressful parts of their job. But if you pay attention to all the factors we've outlined above, you'll be sure to come up with a pricing strategy that works for both your target customers and your business. Good luck!