Pricing strategies are one of the more complicated factors for running a company regardless of the size or industry. Essentially, pricing strategies are innovative ways that a business leader uses to decide the right amount to charge their customer base for buying a product or a service.
Pricing strategies tend to take into account the wide array of factors that impact purchasing power. For instance, how much is your customer willing to pay? How much does your consumer value the type of unique service or product you offer? How does your product or service stand out from competitors and how does this impact pricing?
Are you charging too much or not enough? What type of things impact your customer’s purchasing choices? These questions become even more prevalent in the Information Age since technology has given buyers plenty of information when making purchasing decisions, according to an article from Forbes.
Below we delve into some of the problems regarding pricing products or services. Then we discuss some ways your company could conduct its pricing.
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The Problems Surrounding Pricing Strategies
The typical problems businesses face in their pricing strategies include:
- Using old or outdated methods for setting the price
- Keeping customers waiting on a quote
- Infrequent communication and a lack of responsiveness with customers
- Lacking information on the factors that affect pricing
- Trying to win customers with low prices instead of quality
One of the biggest problems that companies encounter in terms of their pricing strategies is the use of older and outdated methods to determine what amount to charge. Instead, it benefits businesses to use more innovative systems that align with the current Internet culture.
Today, customers are expecting to receive their products via Amazon in only two days and others are looking to know the exact cost of a service like Lyft or Uber. As such, customers are unwilling to wait days or even hours to merely get a quote for the cost of your service. This means you’ll need to solve the problem of more complex pricing and get costs out to customers fairly quickly.
Keeping your customers waiting while you get them a quote is a big mistake. Your consumers will move onto a competitor the longer you make them wait. As such, being responsive and incorporating frequent communication with your customer is key to keep them engaged and interested in your services.
“When you don’t share anything about pricing, your client gets frustrated. They know that you could explain what could cause your price to grow or shrink. When you don’t share that insight, you erode trust,” Marcus Sheridan, keynote speaker and partner at Impact, told Forbes.
As such, it is beneficial for you to have a section on your website where you discuss the different factors that affect pricing for your company. For example, a pool cleaning company will have to explain that the type of cleaning products the customer requests and the size of their swimming pool could affect price as well as whether they need their pool cleaned on a weekend or evening.
Lastly, a problem that some business leaders have is trying to win customers with low prices instead of the value or quality of their services. Often, those who have the lowest price in their industry do not have a product even worth selling because it is likely made from cheap parts or their company includes inferior customer service due to a lack of training. The amount of money a company has coming in relates directly to the quality of their products or services.
You will need to look at your competition, what they offer, and the prices they set. Can you stand out from your competitors? What can you offer that they don’t? Once you’ve figured this out, set your prices according to what sets you apart from competitors.
“A lot of companies have this idea that everyone wants to shop and get the lowest price, but in most cases they’re not,” Craig Zawada, Chief Visionary Officer of Pros, told the news source. “People are willing to pay for speed and quality.”
How should your company determine the prices of your products or services? Below we discuss several pricing strategies that you can incorporate at your place of business.
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Different Ways for a Service Company to Set Prices
There are multiple different ways a service company can set prices. Pricing strategies often include setting a cost per project or service or putting forward the cost based on the time worked.
Depending on the particular service you provide, you can set a specific price or you can charge based on the amount of time it takes to complete a project. For example, if you run a small company providing digital advertisements, you can quote your client based on the entirety of the project or how long it takes you to complete the advertisement.
There are also pricing strategies you can use based on the general psychology behind purchasing decisions. For example, one study from Duke University found that, when there are three pricing options to choose from, 84% of survey respondents choose the third option offering greater value, according to Forbes. The three price points for a subscription for The Economist included:
- A one-year online subscription for $59
- A one-year print subscription for $125
- A one-year online and print subscription for $125
While no one chose the second option in the first experiment, when the researchers removed the second option in a follow-up protocol, 68% chose the first option while only 32% chose the third option. As such, the potentially “useless” option did not end up being useless when it led more people to choose the third option, which is more profitable for the company.
Another pricing strategy is to make sure your customers first see the higher priced products or services. You can do this on your website or in your store. Customers tend to scan an aisle or a page to find the more affordable options, which means a reasonably priced product will more likely sell if the buyer sees a more expensive option first. This strategy can help if there is a particular product you want to promote.
Charm pricing is another strategy that you may want to incorporate. Essentially, charm pricing means that the cost is rounded down from an even price to a little under the dollar amount. For example, the cost of a dress at Macy’s may have been rounded down from $50 to $49.95. Essentially, the psychology behind this finds that buyers are more likely to see the second choice as a better deal even if there is little difference in cost.
Usually, the left digit is the first one that buyers notice, which makes them think the $49 is closer to $40 than to $50. Try to test out this charm pricing strategy on a variety of products and analyze your results.
In addition, you will also want to consider that a higher price for a product or service may make the customer see it as a high quality item that provides more satisfaction. Customers may actually want to pay higher prices because they want to feel that they made a good investment and a sound buying decision.
Essentially, you may want to market your high quality items as luxury products and increase the prices. This could make your product or service more desirable to your consumer base.
If you are offering quotes on your services, you may want to the price point to be based on the hours you worked. As such, keeping track of the hours you worked is vital for determining what to charge for your services. This means that digital tools to help you manually or automatically track the hours you work could be very helpful for your business.
Project management software that includes time tracking tools could be a very useful addition for your company. Keep reading to learn about the time tracking benefits of Runrun.it software.
How Runrun.it Project Management Software Helps Set Prices
You will more easily be able to set prices and see the profitability of your company if you invest in the time tracking tools available through Runrun.it project management software. Essentially, this program includes automatic time tracking for the hours you work as well as breaks you can manually enter in the system.
This makes it much easier for you to show clients how many hours you worked and why your final product costs the amount you quoted. In addition, you can check the data and analyze results from your assignments using this project management software. Checking the amount of revisions a project underwent with the client could help you change the price point to benefit your company as well.
If you would like to see if the time tracking tools of Runrun.it software could be helpful for your company, click here for a free trial.