Set your expectations with the market
Last installment of: How do you set your prices?
This week, I did a new thing:
A week-long email course on setting prices using a simple framework.
And today is the final lesson!
For those just tuning in, here's my Simple Pricing Strategy framework that I use for my clients:
Set your floor with your costs - Explained in the 12/09 email
Set your ceiling with your customer’s ROI - Explained in the 12/11 email
Set your expectations with the market
Set your bill frequency with your conversion and churn rate - Explained in the 12/05 email
Today, let's dig into #3 - Set your expectations with the market.
This step is all about going in eyes-wide open.
You know what your minimum profitable price is.
You know what the value should be to your customers.
(Since we did this lesson a little out of order, you even now know what your bill frequency should optimize for!)
But what you don't know
Is what they expect.
What customers expect is what they've seen before.
And THAT is set by what's already in the market
Aka. Your competition.
So how do you factor competitive context into your own price?
Well, you have to do some research.
You have to take a peek at each competitive product others offer and ask yourself:
"How does this compare to all other products?"
AND
"How does this compare to my product?"
AND
"How is that correlated to its price?"
A spreadsheet can be particularly helpful during this exercise.
You list out all of the competitive products our there in your rows.
Your columns become all the product features.
(Hint: price, brand awareness, great customer service are features too - not just technical features!)
And you're basically looking for trends and logic in the data;
Correlations between stuff each alternative has or doesn't have
And whether that seems to drive the price up, down, or otherwise.
Because when you're done, you'll have an incredibly deep understanding of:
What customers pay
What they pay for certain features
And which features don't seem to impact price at all.
Now, what I'm NOT saying is to price based on your competition.
What I AM saying is that you should price within the context of your competition.
Because you will be compared to them by your customers.
And your price to value ratio needs to make sense
Given how you stack up.
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