Product Pricing Strategies: 3 Common Hurdles To Overcome
We don’t need to tell you your product pricing is important. Or remind you that buyers will often scroll down in your proposal to read your offer first.
A sale is an exchange that occurs when the value that you’ve assigned to your product or service aligns with your buyer’s perceived value of your solution. Pricing is both an art and a science, and according to ProfitWell, a 1% improvement in your pricing results in an average increase in profits of 11%. And that’s money you can take to the bank!
We asked pricing expert and CEO of ProfitWell, Patrick Campbell, to give live feedback on sales proposals submitted by you, our Qwilr customers and readers. Watch the session in its entirety:
3 common pricing challenges
Patrick shared many helpful tips and insights in our live session; here, we pull out the three prevailing themes and common pricing challenges.
1. Too many options
While choice is good, too many choices are overwhelming to a buyer. In fact, too many options, also referred to as “overchoice” or “choice overload,” is an actual cognitive impairment. People have difficulty making a decision when there is an abundance of possibilities.
Professor of social theory, Barry Schwartz, studied the impact of choice overload and wrote a book on the topic called The Paradox of Choice. One of his case studies included a grocery retailer who set up two different displays of jams. In one display, there were six jams; the other contained 24. He gave buyers a discount coupon to purchase a jam; however, the display influenced how many bought. The results: 30% of buyers exposed to the smaller display made a purchase vs. only 3% of buyers who had to choose from 24 options.
The moral of the story is too many options become a taxing experience for the buyer, and so they make no purchase at all.
Patrick Campbell also addressed the importance of simplifying your pricing presentation in a sales proposal. But what if your product is very complex and has many options?
Pricing for complex products
Many service providers and even SaaS solutions have multiple add-ons and variable features for buyers to choose from. If you try to present them all, your pricing table will likely look like a giant menu of choices, and you risk choice overload.
In these instances, Patrick recommended bundling; consider rolling up some of the more commonly selected options into packages. For example, if someone is never going to buy product B without product A, consider including product B in a package with product A.
Remember, too, many buyers prefer having a solution proposed to them plus want the ability to select a few add-on services or features to customize their purchase further. It all boils down to understanding your buyer persona.
Adding features to a package will impact your margins, so be sure to raise your price to reflect the increased value. Many brands do this effectively— as an example, retailers often offer free shipping, but behind the scenes, the shipping cost is already factored into the price.
As you develop your SaaS pricing packages, focus on creating value. If there’s value in your package, the price becomes less of an issue.
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2. No choice at all
Now that we’ve covered the dangers of too many options, we have to caution against the other extreme— not giving your buyer any options.
Presenting just one choice and one price can turn away buyers— maybe the price is too high. Or the buyer wants more services than you’ve provided and is less sensitive to the bottom line price. Different buyer personas buy (and spend) differently.
To accommodate your various buyer preferences, first, identify what each customer segment typically purchases. Naturally, there will be slight variations for each customer, but 80% of your offering should be standardized for your primary buyer personas and frequently purchased additions. If you’ve not done the exercise of mapping out your buyer personas for your solution, you don’t need complex tools or systems to accomplish the task.
Using a spreadsheet, list your primary buyer personas or main customer segments. Then, list the problems each group is trying to solve and what features they usually buy. You now have the beginnings of your packages and a foundation you can continue to refine and optimize. To finish the exercise, think about potential add-ons each group may want, such as priority support or white-glove onboarding that you can present as optional services to supplement their packages.
While many sellers are timid about asking for more money upfront, many buyers will choose convenience over the extra cost. So you might be surprised when buyers upsell themselves into spending 10-20% more— and your quota will thank you, too.
The takeaway: humans are funny, irrational beings. One price may come across as inflexible and is a disadvantage for sellers as well. Providing popular packages by buyer persona plus a few optional services is an excellent way to allow your buyer to customize their purchase and avoid choice overload in your pricing presentation.
3. Exceeding the buyer’s emotional cost cap
Whether your organization chooses cost-plus pricing (the cost of your product plus an established markup), competitor pricing (setting your price based on your competitors’ pricing), or value-based pricing (determined through customer conversations and the value your solution provides), every product has an emotional cost cap.
In our Ask the Pricing Expert webinar, Patrick Campbell shared that pricing is a spectrum, and as humans, it’s difficult for us to think about the worth of something. Instead, we think of value in relative terms: the cost of one item vs. another, or the value one item provides compared to another.
At some point, though, a product’s cost exceeds the perceived value— we develop a range of value which leads to an emotional maximum cost. To illustrate, Patrick gave the example of a $50 Yeti water bottle vs. his $1,000 laptop. Of course, no one would question the high cost of a computer, as it’s much more complex and there are many more things a computer can do. But ask a buyer to pay $1,000 for a water bottle, and they’ll likely walk away from the purchase, as it exceeds the emotional cost cap and the value placed on the product.
If your sales reps are regularly discounting more than 20%, it’s a sign your pricing may be off or possibly exceeding your buyer’s emotional cap. Actions to take if you’re in this situation:
- Talk to your existing customers to deeply understand how they feel about your product.
- Look at the alternative options and what your competitors are charging for them.
- Hone your value selling skills and appropriately build the value case of your product related to the buyer’s needs and objectives.
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Determining product pricing is hard. Most brands don’t do their pricing homework, which means your competitors probably haven’t either. However, you have a better chance of coming out on top if you research how your product differs from the alternatives on the market and what that value difference is worth. Additionally, spend time identifying your primary buyer personas, the features they frequently buy, plus the additional services they want. Bundling features simplifies your sales pricing presentation and don’t forget, offering upsell options adds value for your buyer and increases your revenue.
Lastly, product pricing is never a set-it-and-forget-it activity. Continually reviewing and optimizing your offer is the best way to ensure you’ll win the business—without leaving money on the table.
For more on buyer psychology and best practices for presenting your offer, download our Pricing Playbook.