Competitive pricing strategy & pricing strategy examples

Summary

In this video, Sam Day discusses the importance of setting a competitive pricing strategy for products and services. He highlights key factors such as unit costs, fixed and variable costs, and shipping expenses. Day emphasizes the need to understand the value of your offering and the importance of underpricing while over-delivering to create positive customer experiences. By providing exceptional value at a lower price, businesses can encourage customer satisfaction, loyalty, and word-of-mouth marketing. The video offers practical insights for pricing strategies that balance profitability with customer satisfaction.

Takeaways

• 😀 Understand your unit costs: For physical products, this includes sourcing, importing, and packaging costs. For services, it includes employee time and materials.
• 😀 Consider your fixed costs: These are regular expenses like rent for physical stores or hosting fees for online stores.
• 😀 Factor in variable costs: Unpredictable expenses like repairs or extra services should be accounted for in your pricing strategy.
• 😀 Don't forget transaction fees: Payment processing fees from platforms like PayPal or eBay should be included in your pricing.
• 😀 Shipping costs matter: Whether you charge for shipping or offer it for free, it needs to be incorporated into your pricing strategy.
• 😀 Research your competitors: Analyze competitor pricing to gauge the value your product or service can offer in comparison.
• 😀 Underprice and over-deliver: Offering more value than expected creates customer satisfaction and can lead to repeat business.
• 😀 Be careful with pricing too low: While underpricing can attract customers, it should never compromise the perceived value of your product.
• 😀 Value to customer is key: Ensure your customers feel they are getting more than what they paid for to create loyalty and positive reviews.
• 😀 Reconsider your pricing strategy if it doesn’t cover costs: If your current pricing doesn’t cover all fixed and variable costs, adjust accordingly.
• 😀 Deliver an experience: Pricing should not just reflect the cost of the product but the overall experience your customer receives.

Q & A

What is the first step in creating a pricing strategy for a product or service?

The first step is to understand the unit costs, which include the expenses associated with sourcing, importing, packaging, and any other costs incurred to produce the product or service.

How do you calculate unit costs for a physical product?

For physical products, you calculate unit costs by adding up the costs of sourcing the item, importing it (if applicable), and packaging it.

What makes calculating unit costs for services more complicated?

Unit costs for services are more complicated because they may involve intangible elements like the time of employees or virtual staff, as well as any materials or equipment used to deliver the service.

What are fixed costs, and how do they differ between offline and online businesses?

Fixed costs are regular, predictable expenses such as rent for physical stores or hosting fees for online businesses. Offline businesses may also include utilities, while online businesses might have fees related to maintaining websites or online sales platforms.

Can variable costs impact your pricing strategy?

Yes, variable costs, like unexpected website repairs or platform fees, should be considered in your pricing strategy to ensure your business remains profitable even when these costs arise.

Why is it important to factor in shipping and delivery costs when pricing products?

Shipping and delivery costs are crucial because they directly impact the overall cost of delivering your product to customers. Deciding whether to include shipping in the price or charge it separately can affect customer satisfaction and your profitability.

How can understanding the value of your product or service help set the right price?

Understanding the value of your product or service helps you set a price that reflects what customers perceive as worth the money. Researching competitors’ pricing and ensuring your offering delivers more value than expected can improve customer satisfaction.

What is the benefit of underpricing but over-delivering?

Underpricing but over-delivering creates a positive customer experience. Customers feel they received more value than they paid for, which increases the likelihood of repeat business and positive word-of-mouth marketing.

How does overpricing a product affect customer perception?

Overpricing a product without matching the quality can lead to dissatisfaction. Customers may feel they overpaid, which could harm their perception of your brand and reduce the likelihood of them recommending your product or returning for future purchases.

What should businesses aim for when setting prices for their products or services?

Businesses should aim to find a balance between pricing that covers their costs, ensures profitability, and provides value that exceeds customer expectations. This balance fosters customer satisfaction and helps drive long-term business success.