Proven Pricing techniques

PROVEN PRICING TECHNIQUES

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copyright (c) Pavel Lenshin
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Product or service pricing on the Net is not as critical as
many of you have heard, yet these pricing techniques are
important marketing components and should not be
underestimated.

Right pricing management accompanied with proper marketing
strategy could raise your profits sky high or bring about
lost opportunities and substantially hamper further
development. Here I would like to share the pricing
techniques with you in order to maximize cash inflow and
minimize happiness outflow.

Competition makes the business world go round. Any product
or service you desire to market should be market-checked and
compared to those, which are most similar to yours.
The main three parameters that should be defined and
analyzed include market niche, demand and competition. The
direction of your analysis and result should be:

* The developing of the virtual picture of your "usual"
customer;
* The estimated number of monthly sales;
* The exact prices of your closest competitors' products.

Pricing Policy based on Marketing Considerations.

The days, when product price was calculated by summarizing
the total cost of business running per product item with
specified profit markup are gone and almost forgotten. This
tactics is totally defective in our highly competitive
world. Those, who continue to define everyday prices by that
method, are stagnating with several exceptions that only
prove the rule :0).

The most progressive pricing policy is dictated by Market.
The job of online business is to listen and implement the
most beneficial pricing techniques.
Listen to online market or be squashed. Given your Market
analysis is ready, it is assumed that you have already heard
the market out.

The pricing strategy usually could be two types: short-term
"cream skimming" or long-term market penetration:

1. "Cream skimming" implies high price on newly invented and
promoted product. The market is fresh, the product is
innovative and "hot". The online business cycle for that
strategy is usually from 3 months to 1 year.
2. Market penetration is more appealing to the majority of
start-up ebusinesses. The graduate growth, business
credibility building, long term prospective are the main
components of this pricing strategy. As a standard it
implies the same or lower price level that exists on the
market.

As it comes out from the online product nature, the
overheads are what should be looked after closely. The total
running expenditures should be summed up and known prior to
the stage of pricing planning.

Once you have been equipped with market research and
calculated expenses it is time to define the customer or
retail price. You may also define the discounted reseller
price, client discounts and so on.

The general rule here is to have the result price to be at
least twice as higher than your brake even price. If your
total fixed costs are 100 and your estimated monthly sales
are 20 then to make your business break even you need your
price to be at least 5 dollars per item. In that case your
price should be not less than $10 in order to have some
"price space".

In order to maximize your profit potential your price should
reflect the value, not the costs. Want to raise the price?
Increase the perceived value first. If it is still not
enough to cover the costs - you are not competitive in that
market.

Know the "fears&joys" of your targeted niche. In two words
there is a substantial difference of price acceptance in
offering video course on financial trading to institutional
investors and video course on conducting an interview to the
unemployed.

Decreasing price levels proved to generate more high-priced
sales in comparison with increasing price levels. That is
the reason why many marketers using the following tactics of
persuasion: "I was asked to sell it for $995, I decided to
sell for $489, but especially for You I will cut the price
to $79 only for the next three hours". Imagine if s/he
decided to tell the truth like: "It cost me $9 per item to c
reate, I will be happy to sell it for $39, but I'm so
greedy, that I decided to sell it for $79". In that case
s/he would probably close much less sales :0)

Another technique is price discount, widely used by almost
everyone involved in off or online sales. With the help of
discounts the seller could achieve two main tasks: create
the feeling of emergency and increase the perceived value of
the product and what is more important - without lifting a
finger.

Just try not to overdo it as your substantial price drop
could play a trick by being interpreted as bad quality of
the product.

Price diversification, as the next technique, is absolute
must if you want to cover more people with different
financial capabilities. It is a mutually beneficial pricing
policy for its ability to satisfy much wider demand then
"bold" asking for $99.

This tactics may be implemented by offering the "core" of
the product for the lowest price possible. Second price
level is the standard version of the product for nominal
price and one or even two "extended" high-priced versions
for those who don't mind spending additional several hundred
bucks for more colorful package :0).

Other way to go is to offer popular resell rights on digital
products that, in its nature, play the same role of price
divider and help to cover wider market, without much hassle,
although, sometimes it is not the best tactics to use,
because master resell rights add benefits and perceived
value to a small number of resell rights seekers and have
zero effect on "luxury" seekers, who look for "gold trim" at
every product they buy, so create a "Deluxe" version for
them as well.

Other well-known fact is that psychologists suggest using
.95, .97 or .99 price endings as more favorable prices for
our subconscious perception rather then round numbers.

You can come up with other specific pricing techniques to
suit your business needs, just try to think them over.