With the proliferation of virtual meetings and new membership models, getting the price right is a hot topic. Proper pricing has a significant influence on an offering's viability and profitability, and should be part of the conversation from the start of the development process. Here are some of the ingredients that go into establishing a successful approach to pricing.
For almost any product or service, there is a wide range of pricing options. For example, a quick internet search for a pair of sneakers shows a price range from $6.99 to $795. There are vastly different strategies between these two ends of the pricing spectrum.
So how does one go about building a pricing strategy? Here are five basic approaches to consider:
1. Cost-Plus Pricing: A price established to cover costs plus a margin added for profit. This method is not unlike that used in regulated industries like utilities.
2. Market-Oriented Pricing: A price based on the levels charged for similar products in the marketplace. Automobile companies are keenly aware of the cost of competitive vehicles. Perhaps in part because of this competition, car prices have risen at a much slower rate than inflation over time.
3. Market-Penetration Pricing: A low price to position a product to gain market share. An example of this might be the deals offered by telecommunication and cable companies seeking new customers. The price starts low and then goes up after a year or two.
4. Premium Pricing: A luxury price conveys extreme value and exclusivity. Some people only want to buy the very best and are willing, for example, to pay $44,350 for a Rolex watch.
5. Value-Based Pricing: A price established based on the actual or perceived value a customer places on the product. This method requires market insight to set a fee based on how much a benefit a prospect will gain from the purchase.
After selecting a pricing strategy, the next step is to validate the acceptability of the price in your marketplace. You can gain insight into this real-time using an A/B testing approach. With this method, you offer different prices to separate groups of customers and evaluate the results to see what produces the highest ROI.
An alternate approach is to do market research. A research tool to help you evaluate and define the appropriate price is the Van Westendorp's Price Sensitivity Meter. This method uses a set of four questions to gain feedback on prices that respondents would consider as too low or too high and plots the intersection of the most acceptable price to offer. The findings bring the confidence of statistical validity to your proposed fee structure.
Finally, when it comes time to implement a new price, there are several basic guidelines to follow. One fundamental practice is to take advantage of psychological price points. As a rule of thumb, a price ending in a “7” or “9” will generate more orders and total dollars. For example, membership dues priced at $197 will produce a better response than dues of $200.
Another area to consider in pricing is how to communicate an increase in costs. Several years ago, we conducted research on how associations communicate a dues increase. We compared associations that said they announced and justified a dues increase to their members to those groups that did not highlight the change.
It turns out that associations that raised dues but gave members no justification for the dues increase were more likely to see membership grow than those who presented the reasons for the dues increase (i.e., to pay for new programs or advocacy). The survey supports the adage that silence may indeed be golden.
As many of us work frantically to serve members and develop new products and services, adopting a price strategy can easily be overlooked. However, price is an essential component of a marketing strategy. Price, after all, is one of the four “P’s” of marketing.