That’s right the Fergie. Add this poignant quote to her long list of accolades. Many people argue about the ridiculous prices that Balenciaga charges for their questionable items of clothing. However, nobody argues as much with Walmart or IKEA about how they manage to keep prices so low. Price doesn’t define value but value can define the price.
If you charge someone £10,000 for a seminar but by the end of it they are completely and sustainably renewed and recharged, you would not hear any protests about the price point given the value generated. You have testimonials and a track record to boot. However, if you charge £50,000 a year for a degree which you can only afford with a high-interest loan then people start to question the true value of your product or service.
That’s essentially all one needs to know about pricing. Can you justify your price point by demonstrating true value to your customers or clients or are you constantly fighting against it?
Different pricing models:
Penetration pricing model:
It’s all in the name. Penetration pricing is used by businesses to attract customers to a new product or service by offering a lower price when first entering a market. ****The lower price helps a new product or service penetrate the market and attract customers away from competitors.
Cost-based pricing model:
Cost-based pricing is a pricing method that is based on the cost of producing and distributing the product. This is a common starting point for most founders and business people when deciding on pricing. Assume your new product costs $10 to produce and another $5 to distribute. You add another 20% margin on top for yourself and begin selling. Thus the final price of your product is $18*
*The math ($10 + $5) * 1.2
Competitive pricing model:
If the costs of production for your product are incredibly low and adding a margin doesn’t seem to add up you can offer competitive pricing. Competitive pricing is strategically selecting price points for your goods or services based on competitor pricing in your market.
Dynamic pricing model:
Airlines and Uber are great examples of industries and companies that use dynamic pricing. This is a reason your flight prices change based on seasons and timing. The goal of dynamic pricing is to allow a company that sells goods or services over the Internet to adjust prices on the fly in response to supply and demand.
Fixed pricing model:
I have never been a fan of fixed pricing as a business person or founder but I think in my young-old age I understand its benefits. A fixed cost pricing model is a model that guarantees a fixed budget for the project, regardless of the time and expense. The main advantage of a fixed price model is that it allows the client to plan and set an exact budget. With Moonshot Digita l, that’s what I am aiming for. Offer all non-complex tasks to our clients for a fixed monthly fee so they can plan their budgets accordingly without any surprises from their digital team.
It can be quite easy to over-engineer your pricing model and use price as a leading indicator when most of the time it is the supporting areas that impact your business. Delivering and marketing your value is the tough part, not price setting. There are some cases, such as competitive pricing, where you can’t really go much beyond the fray. Take Netflix for example, their prices kept creeping up but they were able to get away with it because they were producing gems that weren’t available anywhere else. House of Cards, Casa de Papel, Stranger Things and Narcos meant users were getting enough out of the product to let the rising prices slide. However, once they started producing titles like Cuties and other poor reality TV series people started to question it. The pandemic, rising household prices and increased competition added fuel to the fire.
Focus on what your customers want and they won’t go anywhere, regardless of your pricing. Think Apple and Facebook or Google advertising. You have alternatives, but, for the most part, they aren’t nearly as good.
Until next time.
The Back Pocket
A fascinating read:
PROS: Airline Dynamic Pricing: Why It Matters Even More Today
The headlines:
Bloomberg: Netflix Subscriber Woes Hint at U.S. Consumer Pushback on Prices
Originally published at https://www.khanzain.com on April 28, 2022.
