Pricing your product in 3 simple steps

When it comes to setting price it can fall into the ‘too hard’ basket, or a wild stab in the dark.

The reality is that pricing is a blend of science (profit analysis, market assessment) and art (what value can you build into your brand) and there is no exact answer to the question of ‘how much should I charge for my product’. Price is a function of a shoppers perception of value and their willingness and ability to pay the number on the ticket. Sometimes it’s about their literal budget to spend, and other times its about what the purchase ‘says’ about them. Whatever the reason, it takes a little time - and a few steps - to get the price your product is worth.

THE ULTIMATE PRICING WITH CONFIDENCE

Tiffany & Co. charge USD $315+ for a stirling silver pencil sharpener - thats ~$600++ in NZD. It’s pretty fancy and the styling is very chic & aspirational. https://www.tiffany.com/accessories/desk/everyday-objects-sterling-silver-pencil-sharpener-60558736/

The Warehouse charges $0.95 for a silver pencil sharpener (admittedly without the glass shaving catcher).

Both fulfil the function of sharpening a pencil but the reality is that there is a VERY different equation going on in the mind of the brand owner and the shopper than a simple calculation on a spreadsheet.

So how do you price your product with confidence?

1. DO YOUR RESEARCH

Understand your Customers.

• This is about talking to your ideal, current and competitor customers.

• What do they think, feel and do when it comes to price. Do they shop around?

• What are your ideal sales Channel and pricing dynamics. Do shoppers have a choice - like in a supermarket - or is it more limited - like in a cafe?

Understand your competitors

• Who are your direct competitors likely to be right next to you on the shelf, menu or market?

• What is their pack size, packaging type, price per ml/ unit

• Do they offer any particular bundles or special offers

• Think about your INDIRECT competitors as well. A direct competitor to V Energy, is Monster or Red Bull energy drink. An indirect competitor is Coca-Cola, Powerade or Pump water. All offer hydration with different benefits.

Use a spreadsheet to map out all the competitor prices per unit, per ml, bundles and benefits. This will help give you a simple picture of where your products might sit.

2. SET THE PRICE

Decide the price that aligns with your brand position and based on your research insights.

• Do your homework with a full margin model to ensure that it is a VIABLE price that your business can sustain and grow with. Price is the biggest lever that you have to pull and you should be able to cover both fixed and variable costs with your pricing, and give yourself enough profit to pay yourself and invest for future growth.

• If your price only covers costs - or is a simple ‘cost x 2’ formula - then you’re likely to be under-pricing your product and NOT covering your full costs with enough to create a sustainable long-term business.

Test your price at markets, online and through simple qual research before you start to publish wider. See if you can find people who DIDN’T buy your products and ask them what their reasons were. Hint - don’t just ask ‘was the price too expensive’ as there could be other factors that have affected their perception of the value of your product.

• You should be confidently able to explain to shoppers and retailers WHY you have set the price at the level you’ve chosen.

• You’ll know the price is too high when people openly TELL you. Listen for the silence. That tells you you’re spot on - and maybe a little cheap.

3. COMMUNICATE THE PRICE

How you communicate your price to your ideal consumer is critical to achieving your goals. Sure there’s the price you put up on your website or market, but its HOW you help consumers to understand the price which is where the real rubber hits the road.

• Framing. This is about HOW you frame up the value of your product and brand to the shopper. Are you a premium price point with packaging and ingredients that match up with this? How can you give them a good comparison product that they

  A great example of this is Nespresso coffee pods. They are EXPENSIVE at ~$1.00 - $1.50 per pod relative to regular Nescafe coffee which can cost as little as $0.10 a cup. BUT they frame the coffee as being ‘barista at home’ quality which means consumers are comparing it to a flat white at $5 a cup. This makes a Nespresso seem CHEAP in comparison and like they are actually making a huge saving on their daily coffee.

  What’s important here is that they understand their market, competition (barista coffee, not instant) and that their consumer wants to FEEL like they are getting barista quality at a price that they can justify to themselves as worth the purchase of the machine.

• Anchoring.

  This is about how you create different tiers or levels of pricing for your products. There is often a core or ‘entry level’ product that is the basics shoppers are looking for. This sets a first impression and ANCHOR in their mind that they compare all other prices against on the shelf, your website or at a market.

HOW NESPRESSO PRICE

Nespresso do this on their website by placing their most expensive bundle at $145 for 150 capsules ($0.97 each) first and then reducing sizes through to the relatively ‘cheap’ 30 capsule taster selection at $30.70 for 30 capsules ($1.02 each). The reality for Nespresso is that by NOT showing the unit price per capsule, they are able to capture those who are shopping with a limited budget with their entry level offer - and paying more per unit. The shopper will feel like its a good price compared to the $145 pack, whereas the heavier ‘value’ shopper will be attracted by the $145 bundle as its the cheapest cost per capsule across the different bundles.

Remember that you can always change price in the future especially when you’re just starting out.

Testing different price points in different channels - and actively listening to what retailers and shoppers tell you can go a long way in ensuring you maximise pricing and profitability. If you product is only purchased at very low frequency - like Christmas or birthdays - then you have more flexibility as shoppers are less likely to have a reference price in mind and impulse levels are higher.

If you’re feeling stuck with your pricing and need someone to do a review, then get in touch. We have pricing workshops, margin models and testing frameworks to give you the confidence in pricing your products today.