MISTAKE #53: You don’t do your homework when setting your retail price

How did you establish the everyday retail price you recommend your product sell for?

Do you not even know or not remember?

This is perhaps the single most important product attribute vendors can influence, but I rarely see it done with precision or intention.

Vendors I work with consistently approach pricing with the question “What is the highest price we can sell our product at and still get the minimum sales we need?”  They then proceed to pick the wrong price because they’ve asked the wrong question.

Better questions to ask could include any of the following:

What are shoppers expecting to pay or are willing to pay for my product?

How much are my prospects actually paying for current items in my category?

How will our shopper base change at different price points?

At what price do I maximize key metrics (i.e. trial, purchase frequency, repeat purchase, velocity, total profit, etc.)?

How could I use a lower retail price to keep competition from entering my space?

How can I use price to reinforce my equity and differentiate versus competitive items?

I understand the temptation of higher retail pricing.  I understand how extra pennies on the top end contribute directly to your profit, help fund marketing activities or give you room to sweeten the retailer’s margin. 

But I also understand how shoppers won’t pay higher prices unless they’re forced to or have a good reason to.

THE PRICE YOU PAY 

Have you remembered how you got to your recommended pricing yet?  I’ll safely guess that it followed one of these approaches:

You’re trying to be in line with existing competitive items, maybe inching a little higher to reflect the superiority of your product or a little lower to make a slight value play.

You figured out the item cost and added the profit margin you needed plus the profit margin you figured the retailer needed.

You established a minimum price and made wild adjustments (10% or more) to the recommended retail price within days of pitching it to retailers based on fear or greed.

Few of you probably thought about asking your prime prospects to help.  Even fewer actually did it.

I’ve done LOTS of pricing research.  I appreciate that no virtual exercise can duplicate the actual behavior of an individual person exchanging their own money for a product they are buying to gain a specific benefit.

But I’ve also learned to use a few techniques to help predict this behavior.  There are ways to set up scenarios where shoppers give consistent and predictable responses based on different price points for an item.

Pricing research is an art more than a science.  While I’ll give away a lot of my understanding in these articles, I won’t give away my approach to pricing. 

But I will tell you that the results consistently surprise clients and cause them to reconsider their plans.  Sometimes, the results even require doing more research because unexpected opportunities were discovered at the upper or lower ends of the price ranges we tested that warranted further exploration. 

I think clients shy away from gathering objective data about pricing because they don’t really want to know the truth.  They don’t want to let pricing out of their control.

FIND THE RIGHT APPROACH, NOT THE RIGHT PRICE

In reality, great pricing research doesn’t simply tell what price a product should be sold at.  This work is far more valuable and empowering when it gives companies answers to make more useful decisions, like:

What is the profile of people willing to pay a higher price for my product?

Why were shoppers not willing to pay more for my product?

What additional content or information do I need to expose shoppers too so they are willing to pay a higher price for my product?

What value proposition commands the highest price?

Answering these questions empowers the company to control its fate.  This shifts the primary deliverable coming out of pricing research from

“Here is the retail price you need to sell it at.”

to

“Here is what you need to do to sell at your desired retail price.” 

Does this sound like an appealing new approach?  Would you like to gain greater control over how you set pricing?

We’d be happy to help get you on the right pricing path.