Today we’re continuing our discussion on maximizing your profits by adopting a more flexible pricing model. Another way to see this type of flexible pricing in action is to walk around the streets of any large city in America. You’ll find many street vendors marketing wares like pashmina wraps and winter hats. Obviously, these are products that have a higher demand as the weather outside becomes colder. As a result, the price of these products is dictated by the weather: in warmer months, you’ll find these products discounted. As the weather cools the price will steadily rise. If it’s snowing, the price will rise again. This is a pricing measure that is based around consumer demand for this particular product: as the need for cold weather accessories increases, so does the value of these products thus raising the price.
Developing a pricing model that changes the price of your product alongside consumer demand requires more than just a cost analysis. It requires actually getting inside the head of your customer and looking at your product the same way that they do. To do this, you can ask yourself some key questions:
1. What sets your product apart from the competition? Yes, your product might be similar to another product on the market, but it’s unlikely that they’re exactly the same. Recognizing your product’s differences and marketing the product as being superior because of these differences can make your product more valuable to the consumer. Once the product is deemed as a greater value for consumers, they are more willing to pay a higher price for that product.
2. What is your current pricing model compared to alternatives on the market? You can use alternative product pricing as a starting point for getting to the right price for your product.
3. How much are your product’s differences worth to your consumer? In some situations, simply the brand name of a product is worth spending more for that product. In others, it’s more about how green a product is, what the current need for the product is or what their emotional tie to the product is. In some cases, a seasoned professional can use years of experience to help determine a product price. In others, consumer research within the marketplace is necessary to really determine what your customers are willing to pay for your product.
One thing to always keep in mind with your pricing strategy, especially in today’s economy, is that it’s never going to be a cut and dry situation. As variables within your marketplace change, your product price will need to change right along with them. This requires regular evaluation of changes to your competitor’s products and the value of your product to consumers, two important factors in your long-term pricing strategy.
Maintaining an optimal product price is a foundational key for maximizing your profit margins. You can do this by being consistent about responding to changes in your marketplace, staying in tune with what is important to your customers and, based on these factors, keeping your pricing structure in line with what the market will bear.