How to align pricing with business?

What impression do prospects have about your work? Your brand is the sum of the impressions residing in the minds of prospects. The simpl...

What impression do prospects have about your work? Your brand is the sum of the impressions residing in the minds of prospects.

The simplest impression to make in the mind of a prospect is the impression associated with pricing. Therefore the most important activity a small business owner can embark upon is marketing work that aligns with their pricing strategy.

How to align pricing with marketing and business

Aligning Pricing & Marketing

So how do you create visibly excess demand? Or in simpler terms - how do you show you have more people who want your product than you can serve? Let's look at a few common ways.

How Luxury Retailers Do It

Luxury retailers frequently use a pricing strategy known as Premium Decoy Pricing. It works like this you make a $3,000 purse, (for example), and then set it next to your $300 purses. The strategy works effectively in three ways.

  1. Window Shopper Buzz. Window Shoppers have something mesmerizing to look at and talk about.
  2. Price Sensitive Shoppers Feel Good. Price sensitive shoppers who want to own one of your products will chose the $300 purse.
  3. Ultra-Premium Buyers Have A Choice. Status and quality oriented shoppers who want to own one of your products will consider choosing the $3,000 purse. That might rarely ever happen, but even if it happens rarely, it creates a powerful perception in everyone's mind.

How Liberty Jane Clothing Does It

We sell our doll clothes at auction on eBay as a marketing activity that helps us demonstrate we have high demand for our products. We've done it for six years now and when people see the auctions end for hundreds of dollars they usually respond with comments best described as sticker shock. Our most recent auction sold for $394 with 45 bids being placed.

We do these auctions twice a year to display our newest work, which we release as a Spring Line and a Fall Line. We do our best to make the auctions a big event for our fans and followers. They are our version of a runway show.

Of course the designs have to be original, interesting and impressive, but that isn’t adequate for success. The photography, copywriting, and overall selling strategies are critical to the outcome too.

We like using auctions for several reasons,

Legitimacy
These auctions serve to legitimize our premium prices. They give us the social proof needed to sell our other items at premium prices.

Popularity
 As Dan Kennedy recommends, these auctions demonstrate we have plenty of customers willing to buy our items at premium prices. You can't fake an eBay auction. You can't fake the terrific customer reviews that people leave after they get their outfit.

Attention
These auctions draw attention to our newest designs and products. They serve as a type of runway show for us.

Align Pricing with Business Goals

The tricky part about business is that you never know exactly what your competitors are doing.

In the real world of competitive marketing different businesses have different goals. Some businesses are laser beam focused on a goal, while other businesses drift along aimlessly.

As a smart price-ologist you've got to align your pricing strategy to support your business goals.

You might be wondering, “How does this relate to the pricing principles we've already outlined?”

The sequential progression of activities would look like this:
  • First, set a business goal, (see the list outlined below),
  • Second, set a pricing strategy to support the business goal.
  • Third, do marketing that reinforces your pricing strategy that reinforces your business goal.
 So what are the business goals that companies frequently focus on? They commonly include:

Making A Profit
Profit is your actual income from a business after all expenses. Most public companies are mercilessly focused on short-term profits. The shareholders demand it. Since most people are in business to make money, you'd think this would be the primary goal for each small business owner, but it's not always the case. There are many circumstances in which the profit from a business is not the primary goal.

Gaining Market share
If you use penetration pricing to capture the leadership role in a market, then you've sacrificed short-term profits, for the opportunity to dominate a market for the long-term. In online marketing, this is particularly crucial, since many markets are known as "winner take all" markets. In other words, it's only the market leader that makes money. So market dominance is a key goal for many online sellers.

Maintaining The Status Quo
Sometimes business owners simply want to keep the marketplace as stable and calm as possible. Their goal is to meet customer needs without picking a fight with competitors.

Generating Cash flow
Sometimes businesses just need cash as quickly as possible. They frequently decide a discount or short-term sale is the solution. They have excess inventory and decide to exchange it for quick cash. This is a bad idea over the long-term, but sometimes desperate times call for desperate measures.

Survival
Businesses that are on the edge of closure have to do everything necessary to stay open. Sometimes that can mean selling their entire inventory at any price they can get. They are willing to sell things at a loss, regardless of what the long-term ramifications are for their competitors or the marketplace.

Reputation
Sometimes people don't want money - they want respect. They want attention and PR. In those cases, they are willing to ignore common sense related to pricing, so they can get attention.

Fulfill Your Calling
Sometimes business owners feel a deep spiritual conviction to use their business to fulfill social, spiritual, or cultural goals. They value stewardship and the opportunity to change lives. Sometimes these people work in a non-profit context, but not always.

Generosity
Sometimes people want to give back, help others, and contribute to the betterment of mankind. They are focused on the number of people served, more than profit.

Goals Change Over Time

When we started Liberty Jane Clothing we had several goals that drove everything we did. They included:

#1. Reputation. We wanted to be known in the doll-clothing niche. This was our top priority. It was more important to us than making money.

#2. Making $1,000 a month. We wanted to grow a business, and we "only" needed $1,000 a month from it. For a small home-based business that seemed like a good first year goal and we struggled to meet it. But as we grew and could start taking more money out of the business, we chose not to. Instead we started investing our profits back into building the business. We decided we'd take the long view and reinvest our earnings into the business so it could grow bigger, faster, and stronger.

The Best Defense

Part of the challenge of business is dealing with the impact of other competitor's goals. Everyone is trying to do something - and frequently you get caught thinking, "Dang, why didn't I think of doing that" as you see your competitors roll out an exciting new thing.

How do you combat this?

As they say, "the best defense is a good offense". Which means as a business owner you have to decide what business goals you're trying to achieve. Then you focus on them relentlessly. You set the goals and launch the new initiatives.  You strive to reach new heights instead of watching other people climb the mountain.

Being proactive is much more productive than reacting to what other people are doing.

Of course you can't operate in a vacuum, and you have to respond to some competitors actions. But most often, the market is just there, full of randomness and chaos, waiting for someone to do something deliberate - be that person.

Establishing a business goal and focusing on it relentlessly will separate you from the pack very quickly. If you take the time to consider a smart pricing strategy in support of the business goal, and a smart marketing strategy that reinforces the pricing strategy, then you'll be doing more sophisticated work than most of your competition.

Aligning Pricing with Marketing and Business Goals Action Steps

  • Try and align your marketing activities with your pricing strategy. If done wisely, like via an auction, then you will likely find that prospects respond with enthusiasm, energy and respect. If done unwisely, by simply hiking up prices, then prepare for push back from your existing customers and prospects.
  • Prioritize your business goals and get very clear about what you're trying to achieve. Become intensely focused on saying "no" to everything that doesn't align well with your goals. Work to make sure your pricing strategy aligns to support your business goals.

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Thought Leadership Zen: How to align pricing with business?
How to align pricing with business?
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