Did you know that your pricing page is typically the most visited location on your website (excluding the home page)? It’s no surprise then that pricing is often the first thing customers look for in the procurement process. Is your pricing effectively communicating your product’s strategic message?
Misalignments in pricing can harm your top-line sales either by dissuading customers or leaving money on the table. Those misalignments typically fall under three categories: list price magnitude, frequency of price updates, and unit of sale.
Below I’ll walk through how to think about each category of pricing, and how to align with your strategic message to help customers understand your offering's value.
1. How much?
The magnitude of the list price tends to be the first thing that catches the buyer's eye. Buyers will compare your price to the next best competitive alternative (NBCA). Therefore, how your prices stack up against the NBCA is a natural way to communicate your product's relative value and position in the market. Price too high and your customers experience price shock and walk away. Price too low, customers associate your offering as a low-value product, or worse yet, you will become the defacto rabbit, serving only to drive down prices of customer preferred vendors.
2. How often?
The frequency of your price changes can also communicate the level of differentiation you offer. Changing prices as markets adjust makes sense if you sell commodities. However, it’s better to update pricing more cautiously if you have a highly differentiated product. Changing prices too frequently can inadvertently lead to customer dissatisfaction. Is your differential value message being eroded by your price change frequency?
3. By what measure (unit of sale)?
Another essential factor to consider is the unit of sale. Does your unit of sale enhance your customer's understanding of the value your product provides? It’s often low cost for sellers to change the unit of sale, but a new metric can dramatically increase the customer's understanding of your offering and abstract away from pre-existing price anchors.
The unit of sale can often be a vestige of past business models and industry standards. As time passes, the reasoning for the unit of sale should evolve. Using rubber hose as an example: If the hose is a commodity, sell it by the foot. If it is a component, sell it by each. Ultimately the unit of sale should help you communicate your value.
In conclusion, your pricing is a powerful communication tool that can make or break your sales. By aligning your pricing with your product's value message and customer needs, you can increase your sales opportunities and improve your negotiation position. Regularly assessing your pricing and making adjustments once or twice annually (outside of commodities) can help ensure that your pricing strategy is optimized for messaging and customer understanding.
As markets and customer needs evolve, so should your pricing to stay competitive and relevant. Ultimately, by prioritizing your pricing strategy, you can strengthen your brand's value proposition and position your business for long-term success.
