BusinessHABAdd Value to your Business Products:Choosing an effective pricing strategy for your business’s product or service can mean the difference between a profitable, successful business and one that fails to thrive.
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18 Tips to Add Value to your Business Products in Nigeria
1. Price setting:
There are many ways to set your product’s price.
This fact sheet will outline the most common ways of adding values to your product as well as the advantages and disadvantages for each method:
- cost-based pricing
- competition-based pricing
- customer-based pricing
As you review each pricing method, think about your business.
The industry you operate in and your target customer.
Although the pricing methods here are detailed separately.
It is acceptable to blend several pricing methods to suit your business.
And the type of products you sell.
The way you set prices can change over time and for many reasons.
As you learn more about your customers and your competition.
Or if new opportunities arise in the marketplace, you might decide to change your pricing method.
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2. Cost-based pricing
Cost-based pricing involves figuring out what it costs you to make your product.
Then adding a percentage mark-up (profit element) to determine the final price.
With cost-based pricing, it is important to include all the costs of producing your product (such as, but not limited to):
- raw materials
- transportation
- advertising
- wages
- rent
- operating costs
- value of management expertise or labour
- cost for the use of your land or capital equipment
- cost of depreciation on your machinery and buildings
Refer to the checklist Cost of Production check sheets on the Alberta Agriculture website for items to include when determining cost of production for an agriculture-based business selling direct to consumers.
Including all costs in your calculations will ensure your cost-based pricing will be more accurate. Once costs are calculated, use one of these three cost-based pricing methods.
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3.Mark-up pricing:
This approach is favoured by businesses with several products because it is simple to calculate.
The profit level is expressed as a percentage and is added to the production cost to set the product price.
Example: Wild Blue Preserves makes 15 different jams and jellies and sells at a local farmers’ market.
A jar of wild blueberry jelly costs $4.00 per 250 ml jar to produce.
The mark-up profit percentage Wild Blue Preserves wants to use is 40 per cent.
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4. Cost-plus pricing.
This method is similar to mark-up pricing.
But the profit added is a set dollar amount rather than a percentage.
This method is used when buyers and sellers agree on a price.
While the cost of production is unknown or may fluctuate.
Even if production prices go up or down, you still have a consistent profit.
Example: You are a co-packer packaging and distributing low fat energy bars for a start-up snack food business.
As a co-packer, you purchase ingredients through your suppliers.
But do not know your exact input costs.
You sign a contract with the snack food business to pay for your input/material costs, plus a guaranteed processing cost of $40 per case.
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4. Planned-profit pricing:
This approach ensures you earn a total profit for the business.
Planned-profit pricing combines per-unit costs with output projections to calculate the product price.
A break-even analysis is used to calculate planned-profit pricing.
Planned-profit pricing allows a manufacturer to consider how increasing levels of output affect the product price.
Example: A special order cake business sets prices by considering the size of the orders they receive from various customers. A price break is given to customers who order 10 or more cakes at one time.
Advantages of cost-based pricing
The advantage of cost-based pricing is that it ensures you cover all your costs, and the method is a relatively simple way of figuring out your profits.
Disadvantages of cost-based pricing
Cost-based pricing does not take into consideration customer demand.
The perceived value of your product or how your product compares to the competition.
A cost-based system may lock you into a more moderate profit and may leave potential revenue on the table.
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5. Competition-based pricing
Competition-based pricing involves using the price of competing products as a benchmark to set your product’s price.
This method is used when producing a product that is similar to your competitors’ products.
When using competition-based pricing, you still need to cover the costs of producing your product.
Ask yourself these questions to help you assess your competition.
- Which companies would you consider your direct competition?
- What are the types of substitutions – or indirect competition – for your product?
- How many competing companies operate in your market?
- Are your competitors larger or smaller than you?
- Are your competitors close by or far away?
- Is it difficult for new competitors to enter the industry?
- What types and number of products do your competitors sell?
- What pricing method(s) do your competitors use?
- What are you selling and how does it compare to your competitors’ products?
To understand more about your competition, you may need to conduct research.
Once you know more, decide whether you will set your pricing to be the same as your competition.
Or whether you will price your product lower than the competition to potentially increase your sales.
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Example 1: You make a sugar-based pancake syrup and price your product the same as your competition.
Thinking that a new product in the marketplace will inspire customers to try your brand.
As you gain more customers and sell more product.
Some of your costs will decrease because of economies of scale, thus increasing your profit over time.
Example 2: An established producer of beef jerky decides to introduce a new flavour of beef jerky.
They decide to price lower than other jerky companies as a way of encouraging customers to try their new flavour.
Competitors’ jerky is priced at $6.50 – $10.00 per 75-gram package of jerky.
So the seller of the new flavour decides to set the introductory price at $5.95 per 75-gram package to sell a larger volume of product.
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Advantages of competition-based pricing
Pricing the same as your competition makes calculating your price easier.
Charging a lower price than your competition may allow you to lure customers away from your competitors and differentiate yourself based on price.
Disadvantages of competition-based pricing
Pricing that matches your competition may not be based on your ideal target profit and may not allow you to cover your costs.
Other competitors can also easily mimic the price you set or even set a lower one.
So this approach can have a negative effect on the industry by lowering prices over time.
When you price the same as your competitor, price is no longer a factor in the customer’s decision-making process.
So increased marketing efforts (and increased costs) may be needed to attract sales for your product.
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6. Customer-based pricing
Customer-based pricing (also known as value-based pricing) involves setting the price based on customer “demand” and considering customers’ perceived value of the product.
Customer-based pricing requires businesses to have an in-depth knowledge of their customers’ needs.
To use customer-based pricing, you will need to take a market focus with your business.
And find out more about customer buying habits, purchasing decisions and attitudes towards various prices.
Think about your target customer when you answer the following questions.
Does your customer assume that price reflects product quality?
Do customers think they are getting their money’s worth from your product?
Do your customers care more about product prestige than product price?
Do your customers buy solely based on price?
At what price do your customers think your product offers good value?
What are target customers prepared to pay for your product?
If you are just starting out in business or expanding into a new market.
You may find it hard to answer these questions yourself.
Talk to potential customers or develop a formal interview questionnaire.
Here are five commonly used customer-based pricing methods:
- set the price according to your customers’ view of your product
- give customers a promotional price to increase product sales
- design a price range to appeal to a variety of consumer groups
- give customers a volume discount for multiple purchases
- bundle products to move inventory or motivate buyers
7. Set the price according to your customers’ view of your product:
Prestige-oriented consumers believe a higher price means higher quality while bargain seekers are happier with lower prices. Does your price reflect your product image?
Example: Go Green Organic Vegetables targets a health-oriented customer who shops at specialty organic shops. The price for a bag of mesclun mix salad greens is $7. This is $1 above the competition that markets its salad greens through a large retail grocery chain.
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8. Give customers a promotional price to increase product sales:
Promotional pricing uses lower prices to catch the attention of consumers and includes coupon books, holiday discounts, buy-one-get-one-free promotions and more.
Example: Terrific Tea Company circulates a flyer at the local farmers’ market for a buy-one-get-one-free promotion when customers purchase tea blends priced at $10 or more.
9. Design a price range to appeal to a variety of consumer groups:
Grouping potential buyers into differing definable groups is called segmentation. Rather than pricing for one group, you design a range of prices that would appeal to different groups. For example, market segments could group customers by income level, age, geography, amount of product consumed, etc.
Example: A processor of pie fillings has segmented its customer groups by the amount of volume consumed. The low-volume user buys 3 – 6 jars per year, mid-level users buy 6 – 10 jars per year while the large user buys 10 – 20 jars per year.
10. Give customers a volume discount for multiple purchases:
Volume pricing gives a discount to customers buying a larger volume of product. This is done to sell more product or reward established customers who buy more often. If you sell perishable goods, like produce or flowers, volume pricing during peak times may help you sell your perishable product at a lower cost rather than lose profits through spoilage.
Example: During peak harvest season, a Saskatoon berry grower sells a u-pick ice cream pail of berries for $10 each or two pails for $16.
11. Bundle products to move inventory or motivate buyers:
Slow-moving inventory can get a boost when packaged with a group of popular items. Customers seeking a bargain will be drawn to product bundles that offer good value. Product bundling can also be designed for the convenience market: for example, salads bundled with croutons and a single portion of dressing offer added value for the consumer.
Example: A Saskatoon berry grower bundles Saskatoon preserves, syrup and chutney in a gift set. Normally, half as much Saskatoon chutney is sold compared to preserves and syrup. When packaged gift sets are offered for sale, chutney sales increase by 30 per cent.
12. Advantages of customer-based pricing
You may be able to charge a higher price than your competition if you can show how your product has a unique or innovative quality that is worth more to the customer. When a product is unique, a value-based price may be a more profitable option for you. Often, value-priced items are more resilient in economic downturns.
Disadvantages of customer-based pricing
Being too focused on the customer can sometimes take your eye off other important aspects of your business, such as your production costs and what your competition is doing.
Tips for successful pricing
Product prices are important to any successful business. Effective pricing requires creativity, research, good recordkeeping and flexibility. Follow these tips to ensure greater pricing success.
- Be creative by thinking of new ways to sell more to existing customers or to attract new customer groups.·Listen to your customer and keep track of their comments, then review them periodically to glean new ideas.
- Keep good records of how you arrived at a price and track the performance of your pricing, so you can adjust your prices (if required) in the future.
- Be flexible by regularly reviewing internal and external factors and understanding how price changes would affect your business.
13The Faster The Better
The first way to increase value is simply to increase the speed you deliver the kind of value people are willing to pay for.
Successful people know everybody is impatient.
A person who didn’t realize that they wanted your product or service until today, now wants it yesterday.
People perceive a direct correlation between speed and the value of your offering.
A person who can do it for you fast is considered to be a better and competent person offering a higher level of quality than a person who does it slowly, or whenever they get around to it.14. Offer Better Quality
The key to creating wealth is by offering better quality than your competitors at the same price.
And remember, quality is whatever the customer says it is.
Total quality management can best be defined as:
“Finding out what your customer wants and giving it to him or her faster than your competitors.”
Quality does not just mean greater durability or excellence in design.
Quality refers, first of all, to utility, to the use that the customer needs to put the product or service.
It is the customer’s specific need, or the benefit that the customer seeks, that defines quality in his or her mind.
15. Add Value
Another way that you can become wealthy is by looking for ways to add value to everything you do.
Remember, if everyone is offering the same thing, these factors of the product or service become the basic minimum, or the expected norm in the market.
If you want to stand out as a person or as a producer, you have to “plus” whatever you are doing so that your customer perceives you and your offering as being superior to that of your competitors.
Apple transformed the entire world of computers by making them easy to use for the unsophisticated person.
Simplicity became an enormous source of added value for Apple, and for countless other companies that have followed the same route.
16. Increase Convenience
The fourth way of increasing wealth is by increasing the convenience of purchasing and using your product or service.
Fast food stores by the thousands are a simple example of how much more people are willing to pay for convenience than they are if they have to drive across town to a major shopping center or a major grocery store.
17. Improve Customer Service
A fifth way of creating value and increasing wealth is by improving customer service. People are predominantly emotional.
They are greatly impacted by the warmth, friendliness, cheerfulness and helpfulness of customer service representatives.
Many companies are using customer service as a primary source of competitive advantage in a fast changing marketplace.
18. Changig Lifestyles
The next key to creating wealth is changing life styles, and the impact they are having on customer purchasing patterns and behaviors throughout the country.
There is a national trend toward cocooning, or staying at home more and to making the home environment more enjoyable. People’s tastes are very different from the tastes of people a generation ago.
More people want to travel and take vacations, thereby creating a boom in the travel, leisure, resort and cruise industries.
Changing lifestyles and demographics can create opportunities that will enable you to offer a product or service to a clearly identifiable market that can make you wealthy in a short period of time.
19. Offer Planned Discounts
Another key to creating to wealth is just planned discounting.
This involves finding ways to sell higher and higher volumes of products and services to more and more people at lower and lower prices.
You’ve heard it said that, “If you want to dine with the classes, you have to sell to the masses.”
How could you offer a product or service of good value at an even lower price?
How could you squeeze out the costs of getting that product or service to the customer and pass the savings onto him or her?
When you begin thinking of increasing the speed at which you deliver your product or service.
Improving the quality, add value at every stage of production, increasing the convenience for your customers.
Giving better customer service, catering to changing lifestyles and trends and finding ways to reduce the actual cost, you will be astonished at the incredible number of ideas and possibilities that exist around you.
And remember, one idea of insight for benefiting customers in a way that no one is currently offering can be the springboard that launches you into a life of financial success and achievement.
20. customers’ perspective
The art of creating added value starts with the ability to see your business through the eyes of your customers.
Consider what’s important to your target market and how your product or service will benefit them.
What problem does it solve, how will it help them overcome obstacles or do their jobs better?
Many businesses miss the boat by focusing on features instead of benefits.
By shifting your focus to providing content that focuses on your customers’ needs you can start helping and stop selling.
Creating customer personas is helpful to provide insights about your current and future customers, what’s meaningful to them, and gives you a road map of the kind of content you can create and share to provide added value.
21. Consistently work to improve customer satisfaction:
Although the debate over whether the customer is always right (or not!) continues.
Lack of customer satisfaction is a sure-fire way to keep people from coming back.
Soliciting honest feedback through surveys on a regular basis allows you to keep your finger on the pulse of your customers’ needs in their journey with your business and is also an opportunity to monitor your brand’s identity in the marketplace.
Free survey tools like Survey Monkey, KwikSurveys and SurveyPlanet offer easy-to-use templates and unlimited responses to ensure you can collect feedback and create an action plan based on the results.
22. Implement marketing models into your strategy
As you’re searching for ways to create added value.
The use of popular marketing models can help your strategy take shape.
For small and medium businesses, the Four Cs model, Brand Essence Wheel, and SWOT Analysis tool will help you develop your brand’s value statement, define your unique selling point, and even forecast customer demands based on market trends.
23. Develop a memorable customer experience
Businesses with unforgettable customer experiences are more likely to benefit from word-of-mouth referrals, positive online reviews, and higher retention rates.
When getting started, you’ll need to consider all touch points of your business, from initial lead capture to post-purchase communication and how to properly maximize the added value for the customer throughout the process.
Building a customer experience also allows you to develop relationships with your customers so you can connect on levels that go past simply getting the sale.
Most importantly, memorable customer experience models aim to deliver unexpected intangible value that cannot be packaged or sold. This includes personalized service, attention to detail, and showing a sense of urgency to address concerns as they arise.
24. Never underestimate the value of free resources
Whether it’s a free guide, a printable PDF, or a company branded calendar, free resources are a great way to create added value and showcase your brand’s ability to offer ‘a little something extra’ to customers.
Free resources can also serve as useful tools to help grow a small business’s brand awareness and expose your target market to various products and services.
For brick and mortar stores, consider promotional materials featuring your company’s logo that can be given out in-store.
Businesses with an online presence can use a customized sign up form to encourage visitors to sign up to hear more about special offers and promotions.
Remember, although you may be offering something for free.
It still needs to have relevance to your market and should always be consistent with your brand’s overall purpose.
These tips will help you think about a few ways you can add value now and in the future for your prospects and customers.
Conclusion:
Adding additional value to your products or services allows you to increase the price if you choose .
OR it allows you to increase your conversion rates and customer satisfaction (add enough value and you can do both).
It’s a personal choice of mine that I like to give as much value as possible whenever I can.
Remember…people aren’t really buying your book, your ebook, or your CD.
They’re buying the end result. What is it they’re trying to achieve through the product?
Is it to have more money, more time, lose weight, look sexy, etc.?
What do they want that causes them to buy your product?
What other methods do you use to add value for your customers?
Let us know in a comment below.
BusinessHAB