Developing an effective pricing strategy for products or services is a fundamental element in business decision-making.
It involves a delicate equilibrium that ripples across several dimensions, encompassing profitability, brand perception, and market positioning. Within the context of today’s fiercely competitive business landscape, the call is for pricing approaches that are purposeful, aligning not only with the intrinsic value of the offerings but also with the expectations of customers.
In this week’s Let’s Talk edition, our experts share their valuable insights into pricing methodologies, exploring various dimensions of pricing a product or service.
Kristin Austin, Managing Director at KAMCT & Opportunity Delivered
“As a marketer working with business owners on pricing for 20+yrs, I’ve noticed considerable differences in how men and women think about pricing their product/services. Male business owners tend to be more pragmatic and linear – how much does it cost to make/provide x and what markup can be put on that? Sometimes it’s ‘what’s a sensible/industry markup’ or ‘how much can I get away with ‘(value proposition)? It’s a realtively simple calculation.
“Whereas, for many women, pricing often links to their self-esteem and wanting people to like them. Especially in their early days, they often layer the questions below into their pricing considerations, particularly for service businesses;
- am I really worth that much?
- am I worth as much as x?
- will people laugh at my rates or think I’m too full of myself?
- will clients get angry if I charge that/raise prices?
“If you’re asking questions like that, it’s helpful to work with someone at arm’s length who can objectively look at what you’re offering against market needs and take the emotion out of it.
“In the world of consulting, the general-ish rule of thumb is 1/3 to salary (what you pay yourself/team), 1/3 to overhead (bills, rent, interest, tax, currency exchange, contingencies), ⅓ profit (dividends/retained profits). Of course those proportions can be whatever mix you like, but never forget to aim for profit and keep something in the kitty for growth.”
Dan Herriotts, Head of Dealing at IG
“Pricing has everything to do with the customer base that we serve, whose demands are reflected in the products that we offer. At IG, we offer a comprehensive suite of products that answer to what our customers ask for, from onboarding new traders to supporting sophisticated traders with complex toolsets. the primary objective for this is to ensure we are delivering value for money for our clientele and this is how we’ve been able to maintain our competitive advantage over the market.
“As Australia’s number one CFD provider for the last 13 years, IG has worked meticulously to craft a product offering for clients that is competitively unmatched. Included in IG’s USP offering, clients are given access to a large range of markets, out-of-hours indices, and extended hours for US shares all delivered on an award-winning multi-platform. As part of the holistic offering, clients are entitled to around the clock customer service support during market hours, whilst our premium clients are provided the added assistance of a dedicated account manager to provide tailored support with all aspects of IG’s offering.”
Selda Kaplan, CEO and Co-Founder at TaxLeopard
“Determining the appropriate pricing strategy for your products or services requires a meticulous approach. Begin by conducting a comprehensive cost analysis, encompassing production expenses, labour, overhead, and your targeted profit margin.
“Subsequently, it is imperative to conduct market research to gauge the pricing landscape for similar offerings and determine your unique value proposition.
“Customer perception holds utmost significance; pricing too high may discourage potential buyers, while overly competitive pricing may inadvertently imply inferior quality. Consider implementing price testing strategies and actively seek customer feedback to discern the optimal pricing equilibrium.
“Furthermore, it is crucial to factor in your target audience’s willingness to pay and remain flexible in adjusting your pricing strategy accordingly.
“Maintain a dynamic approach by regularly reviewing and adapting your pricing methodology to align with evolving market dynamics, competitive forces, and shifting customer preferences. Pricing is, indeed, a dynamic element of your business strategy, requiring continual analysis and refinement to ensure both competitiveness and profitability.”
Warren Schilpzand, Area Vice President of Australia and New Zealand at DataStax
“Pricing products or services is a challenge for any business, but with the use of real-time AI, coupled with a vector search-enabled database, organisations can dynamically price their offerings based on customer demand and behaviour.
“When a customer visits a website and clicks around, data is generated. The same goes for when they fill their online shopping cart – and then sometimes abandon it before going through with the purchase. Businesses can turn this click and behaviour data into real, actionable insights using AI and vector search to analyse what a customer is doing, and then provide data based on what they’ve done in the past.
“These insights allow an organisation to respond immediately with offers and discounts, instead of waiting until after the customer has left the site and the sales opportunity has disappeared. A customer who is comparing multiple products, for example, can be shown the best price available, while another customer who is looking like they are going to abandon their cart can have an offer made to them in real-time, boosting the likelihood of a sale.”
Jodi Duncan, Marketing and Behavioural Insights Consultant/Owner at Fletch & Co.
“Pricing is not just about crunching numbers and a quick play at profitability. The most successful pricing strategies blend financial expertise with behavioural economics, creating compelling offerings that not only appeals to the target audience’s core values but also speaks to their unconscious decision-making triggers. Take tiered pricing, for example. This isn’t simply about providing options – it’s a sophisticated strategy that often employs the “decoy effect” to guide consumers toward a middle option that capitalises on cognitive biases relating to value perception. Add to this the concept of value-based pricing over time / hourly rates – an agile, forward-looking approach that aligns with shifting consumer expectations. As market conditions and consumer preferences change, an effective pricing model adapts. It doesn’t just respond to the moment; it anticipates future value, creating a sustainable model that evolves with consumer psychology.
“An effective pricing strategy doesn’t just react to the present market but anticipates future changes and demands, striking a delicate balance to optimise long-term revenue. This allows businesses to fine-tune their offerings in a way that is not just attractive to consumers, but also maximises profitability.”
Ray Gao, Head of Brand at Access Group
“Sitting at the premium end of the global wellness market, Access Group customers are highly focused on health and wellbeing and prepared to pay for quality and efficacy. We tend to determine pricing based on a few different considerations:
- Margins: we have a set margin profile in place across the product portfolio i.e. we need to control the cost of goods sold (COGS) at a percentage of our retail price, in order to cover our costs of doing business (CODB).
- Affordability: we also look at the profiles and segmentation of our customer base and understand their income and spending, what’s affordable for them.
- Innovation Equals Higher Pricing: If we’re launching a product that’s first in category then that gives us a little more licence with pricing. For example, we’ve just launched Theronomic, Australia’s first tribiotic health supplement at a price point of $59.99 and Calibrate Reds, an ingestible weight loss powder modelled on GLP-1 regulation, at $110.
- Reward Loyalty: with all our hero brands, we reward loyalty from repeat purchasing with discounted pricing. At check out we offer a monthly subscription option which is around 10 to 15% less than the one off purchase price.
- Monitor the Competition: we analyse the prices and the quality of competitors’ products to ensure that we remain competitive.
- Hero Products Elevate Your Brand: Sometimes best in category SKUs are not highly profitable, but they can deliver a ‘best in market’ claim that creates a halo effect across the whole brand. The value of these investment SKUs lies in elevating the brand, driving credibility and trust and building purchase volume across the lower value lines.
- Roundings: It’s a tried and trusted pricing tactic, but $99 sounds a lot less than $100.
- Efficacy vs Bells and Whistles: If you have a product that you know is the best in the category, you can price it appropriately with a degree of confidence. If you have a product that doesn’t have the best performance, but it has extremely beautiful packaging, that will also help maintain a higher price point. You have to have some kind of relevant value proposition for the consumer to help maintain premium pricing, whether that’s quality, packaging, collaborations, ambassadors, award wins or whatever the touchpoint is, otherwise it’s likely that at some point in time, you’ll have to drop the price.”
April Booij, CEO and Founder of FAME Event Design
“Pricing can often be difficult to manage, and something we are always refining, finding that fine line between valuing your services and time, as well as valuing your client’s budget and ability to pay.
“Being a services-based business in the events industry, there is no such thing as set packages or rates. The scope and size of every job we quote on can range from a 60-person conference to a 1000-person Gala Award night and everything in between.
“At FAME, we take a custom pricing approach to every job we quote. Our initial discussion with a client is imperative to identifying the project scope and key focus areas for the job.
“During these meetings, identify the required elements. Whilst every event may be different, the scopes are often the same. i.e. every job requires the sourcing of a venue, but not every job will require guest management. We take this shopping list approach back to the office to price accordingly.
“Based on over 130 events we have completed to date, we have a wealth of understanding of approximately how long tasks take for their size of events. This allows us to apply a simple formula based on how many hours are required for the project.”
Michael Haynes, SME Business Growth Specialist at Listen Innovate Grow
“For Service providers (such as Accounting, Law and Technology firms) operating in the B2B space, it is important to consider pricing from a holistic value- based perspective.
“This means having an in-depth understanding of the Buyers within their target organisations in terms of their key priorities, requirements, expectations and challenges.
“Based on this understanding, create holistic market offerings comprised of products, services, programs and systems (often referred to as ‘BUNDLES’) that create the greatest value for target market segment and customer firms.
“A key success factor is the inclusion of value-adds (e.g. training, reporting, support) that will cater to a broader set of buyer needs.
“Doing so, enables service firms to differentiate their offerings which allows them to charge premium prices due to the value delivered to and sought by the target customers.”
Cameron Fancourt, CEO of Venture.ly, Foundr.ly, and Director of Zonda Group
“Pricing is something that could keep you up at night (and it has for me on a few occasions) as it can make or break your business, so consider a few basics.
“Remember that pricing is a delicate balance and requires the consideration of various factors, market dynamics, and your business goals.
- “Cost-Plus Pricing: One of the most traditional pricing methods, cost-plus pricing, involves calculating your costs and adding a markup to determine the price. It provides a baseline for setting prices that ensure you cover your expenses and generate a profit.
- Value-Based Pricing: focuses on the perceived value your product or service offers to the customer. It considers how much your target market is willing to pay for the benefits you provide.
- Competitive Pricing: entails setting your prices based on what your competitors are charging. It’s a practical approach for market-entry or positioning your business in line with similar offerings.
- Dynamic Pricing: is responsive to changing market conditions, demand fluctuations, or real-time data. This approach is common in e-commerce and the travel industry.
- Psychological Pricing: plays on consumer psychology to influence purchase decisions. Strategies like pricing just below a whole number (e.g., $9.99) or a bundle.
“Basically, setting the right pricing strategy for your products or services is a multifaceted task that requires careful analysis of your costs, market dynamics, and your target customers’ expectations. Get it right and it will drive growth and profitability for your business!”
Karan Anand, Managing Director in Australia at Hnry
“Hnry is the world’s first digital accountant and tax automation service designed for the self-employed, so our pricing model is shaped to reflect how contractors, freelancers, and sole traders actually earn. Many sole traders have fluctuating earnings, and some may not earn at all during certain times of year. We’ve built our service around this, and only charge our customers whenever they get paid through their Hnry account.
“For just 1% of your independent income, you get full access to the Hnry service, the app, and our team of accountants. We don’t charge by the hour to answer questions, manage expense receipts, or lodge tax returns – so sole traders are always paying a fair price, and only paying when they’re earning.
“Our pay-as-you-go model works particularly well for people who have just taken the leap into self-employment. At Hnry, we want to make independent earning as simple and accessible as possible, so a flexible 1% fee offers people the opportunity to pursue their business dreams without the burden of tax and financial admin.”
Ben Lucas, Director and Co Founder of Flow Athletic
“We determine our pricing based on what fitness studios who are similar to us charge. We are not a budget product, so we don’t want to charge less, but we also want to be fair.”
Pramesh Bajracharya, Marketing Manager at POSApt
“Pricing, an age-old puzzle for businesses, often leaves managers, entrepreneurs, and business owners perplexed. While there are over 20 proven pricing strategies, ranging from traditional methods like cost-plus and anchor pricing (popularized by Steve Jobs during the iPad launch) to newer approaches like subscription and freemium pricing, choosing the right one is no easy feat. Above all, in today’s climate of escalating inflation, supply chain disruptions, and labor constraints, the optimal strategy is far from a one-size-fits-all solution.
“Consider, for instance, a startup with a diverse product portfolio and the financial leeway to sustain initial losses; they may find the loss leader and penetration strategy most appealing, enticing customers with low-margin products and reaping profits from subsequent high-margin purchases.
“On the flip side, businesses offering high-value, innovative products might find value-based pricing and skimming to serve them best, capitalizing on early adopters’ willingness to pay a premium.
“So, determining the “best” pricing for your products and services hinges on your business’s goals, market conditions, and product nature. Combine multiple strategies and make regular adjustments based on real-world results, changing conditions, customer feedback, and market research to hone your pricing strategy that meets your business’s unique requirements.”