How to Choose a Price for Your Product or Service

How to Choose a Price for Your Product or ServicePricing is one of the “4Ps” of marketing, yet for many marketers, it’s a bit of a black art.

Your price plays an important role in the psychology of your buyer. It can work to enhance your positioning and brand, or to dilute it. Here are two common reactions to different price points:

“If it’s that expensive, it must be good.”

“Wow, this is so cheap. Can it really be as good as the others?”

If considering how to choose a price for your product or service, make sure that you align your price to your brand strategy. This is critical, because a price that’s misaligned with your brand will cause conflict in the market.

For example, if Rolex priced their watches at the same price point as Seiko, would they still have the same desirability? New portions of the market that couldn’t afford a Rolex previously would buy them, but current customers would move to another luxury brand and the Rolex brand would become diluted.

Pricing for Positioning

The most important decision when selecting your price is a simple one. Select your price “bucket” based on your brand positioning:

  1. Luxury: high price
  2. Common: similar price
  3. Discount: lower price

Remember, your price doesn’t have to reflect the cost of the product or service. It should reflect what you want your brand to mean to your market. Here’s an example:

  • Grey Goose Vodka: $30 USD per bottle
  • Smirnoff Vodka: $15 USD per bottle

Grey Goose says it’s the best tasting vodka, but Smirnoff commonly wins blind taste tests. Is Grey Goose really a better product, worth twice the price of Smirnoff? It’s doubtful. But the perception is that it’s better, because of the price point, brand creative and messaging. Perception is reality, and the high price and exclusivity promoted in the marketing makes the perception real.

How to Choose a Price for Different Market Positioning

If you haven’t yet decided on your positioning, tackle that exercise first. If you’ve already outlined your strategy, it may very well dictate your price. It seems like such a simple exercise, but it’s very common for small to mid-market companies to misalign their pricing and their market positioning.

Strategy for a Higher Price

You’re positioning your brand as luxury or exclusive. Since it costs more, it should appear to be better than the competition. You’re using price to differentiate from the rest of the market.

Make sure your marketing has a high-end feel – your design, copy and imagery. Some portions of all markets desire the high-end, even in B2B, so appeal to these people and win the mindshare of being the luxury brand in your market.

Strategy for a Similar Price

Here, you’re taking the price off the table, since your product or service costs roughly the same as most of your competition. To avoid being a commodity, focus on a unique element of your product or service, or take an opposite angle from your competitors to your marketing approach. You’re striving for differentiation without using price, so you have to handle it with what you communicate to the marketplace.

Most of this will occur at the campaign level instead of the brand positioning level. You’ll change this over time, which is necessary to stay fresh and make an impact on your market.

Strategy for a Lower Price

Being the cheapest product or service can be a double-edged sword: people love a deal, but some worry about quality. If you’re selling a true commodity, then your low price is your main differentiator in the market, and your marketing should emphasize it.

If your product or service isn’t a true commodity, then balance emphasizing your lower price along with happy customers, or with a unique feature or benefit. Work to counteract any perception of “low quality.”

Taking the time to align your price with your brand positioning might be the single more important decision you make for your brand, so give it plenty of thought and gain buy-in from your executive team.

It’ll save your entire company from a lot of headaches later!

PRICING STRATEGY TEMPLATES / MARKETING PLANS / PROJECT MANAGEMENT

EVERYTHING YOU NEED FOR YOUR PRICING STRATEGY PROJECT

The Marketing MO planning app is your behind-the-scenes Chief Marketing Officer, a comprehensive resource that will improve your overall business, whether it’s a consulting practice, start up, or mid-size company. When tackling any new marketing task, have confidence that we have your back – with the structure and detail you need to get things done right

Try It NowNo Credit Card Required