How to Price Your Product or Service
This week, we are going to dive into how to price your product. We have been talking about the Four P’s of Marketing: Product, Price, Place, and Promotion. For a quick overview of the Four P’s, check out Tip #1, What is Marketing.
What is Value?
When coming up with a price, we need to start by thinking in terms of the value that our product or service brings to our customers. How do we define value? For example, why does a diamond ring cost $1,500 and a toothbrush only cost $2.99? Is value equal to usability? No. A diamond ring is beautiful to look at but it has little use. Whereas a toothbrush keeps our irreplaceable teeth clean and healthy. Perhaps value is equal to its ability to be resold? Obviously, you can sell a used diamond ring. But, even a high-end electronic toothbrush loses all resale abilities after just one use. Yet, this still does not explain value. Most of us don’t make purchase decisions based on thinking about reselling the item. So what exactly is value?
Marketing Your Value
Regardless of whether it is a diamond ring or a toothbrush, people make purchases based on what they value (shiny rings and shiny teeth, for example). But value is a perception and a preconceived idea. A diamond can be handed down for generations while toothbrushes generally do not find themselves into people’s wills. So while both are valued, one can obviously hold its value for much longer. Now we have crossed over into worth. The diamond is worth more than the toothbrush and thus we value it more. Think of it like this: value is subjective while worth can be measured.
Unfortunately, worth makes for a rather boring marketing campaign because it does not capture the emotional level at which we make decisions. For example, I don’t buy high-end toothbrushes because they are worth more in terms of the material and technology used to create them. I purchase them because of the perception of value that I put on clean teeth and the preconceived idea that an electronic toothbrush will do a better job. From a marketing perspective, we have to figure out ways of making worth sound a whole lot more sexy and emotional. We do this by describing it in terms of value. As consumers, worth helps us understand the price, but value allows us to justify the price.
Understanding how to price your product or service
You may have realized that we have not actually come up with a price yet and that is OK. The first step is to be able to describe the value in a way that speaks to the needs, wants, and desires of the customers we are trying to reach (read why customers buy). Once we understand and can explain the value of our product or service, we can then begin to think about the worth of our idea. Our next tip will dive into exactly how to come up with our worth and a price to go along with it. None of that matters without first defining the value.
