1. Know the price walls for your category. Surprisingly unit volume is not always in a perfect direct inverse relationship to price at every step in the pricing continuum. “Price walls” are set price points where unit volume drops measurably if the wall is exceeded and conversely unit sales will stabilize as the price wall is approached. For instance, let’s say a key price wall for golf balls is $40 per dozen. A company that prices its golf balls at $35 may be leaving a significant sum of money on the table, while another that prices its product at $41 will experience a significant revenue shortfall versus a price of $40 price. You need to know the precise position for the price walls in your category.
2. Determining your most compelling product attribute will help you to identify your optimal price point. To stand out from the competition it’s crucial, your USP, your unique selling proposition that leverages your most important brand benefits, resonates with your target audience. Pricing research can help you determine the optimal brand attribute and the precise messaging to secure the highest price and sales volume.
3. Price connotes quality and too low a price can and will impact your brand. There is a big difference between having a value proposition versus being viewed as a cheap, low ball brand. Studies show that 9 times of 10 companies err in having too low a price to the long-term detriment of the business. Pricing research can help value marketers from going so low it fatally impacts your brand image. Don’t go too low!
4. A one size fits all marketing approach seldom succeeds especially in a mature category. Knowing which market segments to focus on and how to optimize your appeal and your customers willingness to pay is important in building your business. Like most categories the golf market is made up of several distinct sectors including the serious frequent golfer, high handicappers, female golfers, and new golfers. Pricing research can take into account competitive intensity and play a big part in guiding you to your highest profit potential audience.
5. Price is your biggest profit lever. At the end of the day there are only three ways to increase your bottom line profitability: 1) sell more units; 2) cut costs or 3) optimize pricing by measuring your prospects willingness to pay. Of the three profit inducing options nothing has a bigger impact on the bottom line as finding your optimal price point given that on average just a 3% increase in price can improve profit margins by as much as 33%. That 3% may not be noticeable to the customer but could mean success or failure for your business. Don’t leave money on the table!
6. A cost-plus pricing strategy generally equates to less profit. Optimal pricing is based on what the customer is willing to pay, not your cost of goods. For too long many companies have taken a cost-plus approach to pricing when in fact, as far as the customer is concerned, one has relatively little to do with the other. The variables that go into what price point your prospects are willing to pay include the market segment you are focused on, and the product benefits you emphasize, not your cost of goods.
7. A “good, better, best” pricing strategy can help you improve perceived value. Anybody who has considered buying an Apple Watch is familiar with Apple’s better, best pricing strategy. Apple sells its mainstream watches for around $400 but it also offers a super premium watch for well over a $1,000. For most of us the $400 watch does just fine but the expensive $1k + version conditions us to thinking we are getting a deal in paying “just” $400 for a watch. Use a price anchor!
8. Why a “money back guarantee” works best when competing against a dominant competitor. Every investment or product purchase represents a risk/reward proposition for the customer and this is especially true for an offering from a new company or an industry upstart. Generally speaking the more a company can reduce the perceived risk of a product, the higher it can raise its price. Only a very small percentage of customers actually hold companies accountable for money back guarantee offers but their presence can significantly lower the perceived risk.
9. Don’t let your sales team drive pricing decisions. Good sales people are often aggressive “alpha dogs” and generally speaking are particularly forceful in championing their viewpoints (i.e. touting unit sales versus profit). They tend to believe that the lower the price the more product they will sell and that’s often, but not always true as the above discussion about price walls suggests. For sure get the written input of your front line sales team but be aware that their input can often be self-serving (i.e. many quotas are based on unit sales) and even unwittingly detrimental to the long term health of your business. Let pricing research have a say!
10. Celebrity endorsements are iffy propositions. There are all sorts of minefields in celebrity endorsements and in many cases a credible club pro that can effectively communicate your basic brand message will suffice just as well and save tons of money. Celebrities can benefit your brand in terms of raising brand awareness which is important but there is very little proof that one celebrity will make your business. And any celebrity that did have that type of impact is likely to be associated with a number of products which only dilutes his or value.
About the Author
Robert Tinterov is the CEO of one of the leading global pricing companies, Atenga Insights, which is headquartered in Sweden with a US office in Southern California. The company has performed almost a thousand, different in-depth pricing research projects worldwide including some of the leading names in golf as well as promising upstarts. Mr. Tinterov is an enthusiastic and avid participant of the game who like most of us finds the sport frequently humbling, yet always rewarding. He will be doing a free pricing webinar specifically for golf companies in the early Spring. To participate please email Robert.email@example.com