There are some experiences that all business owners have in common. Figuring out the right price for their products is one of those common experiences shared by all entrepreneurs. In this tutorial I will explain when to overcharge, when to charge below market, the difference of free vs. paid products, and how to leverage a tiered pricing model. To start, here is a video tutorial on how to price your product.
What Is Marketing & Why It Is Important For Pricing
Before we get into pricing theory, we must understand the genealogy of marketing. A market is born when someone has a need, and another person has the solution for that need. Together those two people form a market within which they can trade money for value. The amount of money a person can charge is related to how dire the solved need is, and how much the person who needs that need solved is willing to pay for it. Here is a longer tutorial on the roots of marketing.
Research What Competitors Are Charging
If you have competitors, you must take their prices into account before you decide on the price for your own products. Typically companies that are more reputable, have a recognizable brand name, and provide a high quality product, are able to charge more. And companies that can’t say these things about themselves charge less. Try to understand your competition, and price your product according to where it falls on the quality and recognition spectrum.
Additionally, you can network with your competitors. Here is a video tutorial on how to get the most out of your relationships with your competition.
Free vs. Paid Products
One great way to beat your business competition is to have something that you give away for free. It is difficult to give away physical products because they cost you money to create a ship, but it is easy to give away free digital goods because they are free to replicate. If you can give away some free digital guides or anything else, you can use that to attract a mass of free customers whom you can then try to convert into paying customers. This would also have the effect of suffocating your competition because most of the buzz and new leads would be going to your business instead of going to your competition. This strategy is called freemium. Here is a full tutorial on the freemium business model.
Here is a short video discussing the pros and cons of when to make your products free, and when to make them paid.
Tiered Pricing Model
The most interesting fusion of free products, $0.99 cent products and more expensive products is when yo can offer them as options either in a tiered pricing structure or by selling multiple products. You already understand the benefits of providing free products. Having a $0.99 cent product helps your customers take the step from not paying to paying. Charging just one dollar is often the smallest psychological step you can ask your customers to take. The problem with charging just one dollar is just that. It is just one dollar, which won’t help your business too much. So this is also the negative aspect of having such a price. This is why you must also have a more expensive option for people who can afford to spend more money.
Here is a video on the power on having a $0.99 product.
When To Charge Higher Prices
Many business owners have a tendency to underprice their products or services. This often happens through lack of confidence. If you can, try to charge higher prices. You must believe in the quality of your products.
You can also charge higher prices when you have less competition, or if you happen to be one of the top players in your market. You can sometimes make your brand appear to be a higher quality brand simply by having higher prices.
When To Charge Lower Prices
It makes sense to charge lower prices if customer reviews are important for the kind of business that you are running. If people perceive that they get more value than they paid for, they will be more likely to leave nice reviews. Nice reviews will help to convince other potential customers to buy your products who will hopefully also leave nice reviews.
If, on the other hand, people perceive that they got insufficient value for the price they paid, they may leave bad reviews which will hurt your future sales.