In the business world, pricing products is a unique skill that not every small business owner or entrepreneur has. Many businesses brainstorm and identify a competitive strategy for their business early on. Typically, this includes a competitive price for their goods or services and once they’ve established this number—they tend to stick with it. That’s because continually changing the fees for your product and/or service can do more bad than good. It can confuse customers and eventually lead to cash flow problems.
Pricing is integral to any marketing campaign. It works together with product and/or service development, positioning, and the venue where it is sold.
When you cut your original price, you are essentially and very rapidly decreasing your brand’s reputation. If you were originally marketing high-quality products or services, this can do more damage to your brand than good.
Why pricing products (accurately) is so important
Pricing products accurately is key to any business starting out. It not only defines your products’ or services’ value, but it’s also the tangible price point to let your customers know whether or not it is worth their time and investment.
Yet, many businesses still get it wrong.
“On average, a 1 percent price increase translates into an 8.7 percent increase in operating profits (assuming no loss of volume),” says a study by McKinsey & Company. “Yet, 30 percent of the thousands of pricing decisions companies make every year fail to deliver the best price.”
So what approach then, should small businesses take to pricing products during a pandemic? We’ve outlined 4 tips to get started today.
1. Understand consumer trends
The normal rules of pricing products before a pandemic no longer apply. The sooner businesses understand this, the quicker they can make it to the other side. Do your due diligence and understand consumer trends. Before making decisions, read consumer trend reports. A recent Nielsen study, for example, showed consumers began spending more money on areas of health and wellness.
Labeled as “pandemic pantries,” the study showed a major spike in spending of emergency supplies—including non-perishable foods. And not surprisingly, there was a major increase in online shopping due to pandemic restrictions. Understanding these consumer trends, and taking actions based on these, will be crucial for business owners when looking into a pricing strategy.
2. When all else fails, add value first
When stuff hits the fan, what’s the typical behavioural action? Get out, immediately. This applies to most things in life: the stock market, an awful manager, a toxic relationship. Increasing prices right off the bat isn’t the way small businesses should go. Rather, we are seeing many companies—large and small—take a more strategic, value-driven approach to pricing products.
Restaurants and breweries are now delivering beers to people’s homes, yoga and fitness studios are offering classes online, service businesses are hosting free webinars for clients, and many more. Whether it’s investing time online with a new delivery form, leveraging social media (i.e. Instagram Videos, Tik Toks) to provide fitness classes and materials, or building partnerships with local food delivery apps, these businesses are focusing on adding value first—before hiking prices. And you should too!
3. Avoid a price hike
During a pandemic where the most certain thing is uncertainty, it’s natural to want to increase prices. After all, pricing products higher, won’t you increase profits too?
Nope, think again. These days, consumers are more sensitive to price than ever before. Pricing increases, when done dramatically or too quickly, can cause mistrust among consumers. And maintaining trust right now is crucial during this time of uncertainty.
4. Don’t start reducing prices either
Although hiking prices are a no-go during this time, don’t start reducing prices either. If your product or service has been priced at a certain price point for a while, then customers are likely still happy to pay a regular price for certain products. After all, its price point is a direct relation to how much you think your own product or service is worth – and your existing customers should know that too.
According to a Nielsen research study, 29% of North American consumers said they would continue to pay for electronics, while 27% said the same about clothing. Other strategies for pricing products include payments. As an example, if your customers currently pay an annual fee for an ongoing service of yours, perhaps offering monthly payment plans for them instead? From a cash flow perspective, it doesn’t hurt your business, but it could provide value to them during a pandemic—especially if they have tighter monthly budgets.
Pricing products is an ongoing skill
Pricing products, much like accounting or investing, is a learned skill. Over time, small business owners will get a better grasp of how to price their products and/or services appropriately. However, the global pandemic that we’re currently in truly has shaken everything from the ground up. What once worked when it comes to pricing products may no longer work. Instead, small business owners should get creative and see how they can provide value to their customers instead.
Are you worried about your business’s cash flow during these challenging times? Contact our team at Kashoo, or give our 14-day free trial a shot to see how our simple and affordable accounting software can help work behind the scenes so that you can get to focusing on your pricing strategy.