Your pricing strategy is perhaps the most important of the 4Ps (Product, Price, Promotion, Place) of a sound marketing plan. Set it too high, and you’ll lose customers’ too low, and you’ll lose revenue.
Your pricing strategy needs to consider the customers’ perceived value of your product or service and your target market’s ability to pay. To show you how your pricing strategy can adapt to customer feedback, I’m going to share how ZoomShift designed a perfect pricing plan that keeps customers happy while generating healthy revenues and margins.
1. Undertake a pricing analysis
Pricing analysis is the process of evaluating your pricing strategy within the context of the market in which your app will compete.
If your service caters to a broad audience in a market with multiple competitors offering similar products, you may offer a free version of the product at first then offer additional features at an extra cost. You also keep your monthly pricing low and aim for higher sales volume, a strategy called “penetration pricing”.
Regardless of the pricing model you use, the customer will still engage in price comparisons before making a purchase decision. According to Forrester Consulting, 81% of consumers compare prices before making a purchase decision. If you offer too little value at a higher price (like focusing on desktop users instead of offering a mobile version of your app), your prospects will think twice about engaging with you.
Price is one of the most crucial factors for B2B SaaS customers. While consumer goods and retail businesses can still leverage buyer experience based on variables like in-store visual merchandising, store ambiance, and personalized service to charge a premium, you cannot do the same if you’re trying to sell HR software.
Make a price index calculation:
The price index is a metric that illustrates your pricing position in the market. Let’s say ten competitors offer a product similar to yours. Add up the price of each competitor and divide the number by the number of competitors to get the price index. The price index tells you if your product is priced above or below the market average.
ZoomShift went with this strategy when they were deciding on a pricing model for its timesheet app. The company noticed that most of its competitors charged between $2.50 to $7 per user/month, so they needed to keep monthly charges around this range or lower.
Once you manage to figure out what makes your competitors price their products the way they do, you’ll have more bargaining power with external suppliers.
Using past price data to your advantage:
We understand how time-consuming and expensive it is to keep track of competitor prices. It does, however, contain a wealth of information.
In ZoomShift’s case, the leadership noticed certain patterns in their competitors’ pricing behavior. They learned about the features that generated the most demand and how high they raised prices for other items during certain seasons, among other things. You’ll be able to respond to their pricing tactics without losing money once you have this detail.
Pricing software will help you take your business to the next level:
Tracking your competitors’ pricing manually is time-consuming. To make well-informed pricing choices, companies develop their price monitoring tools. You can go the route of developing customized solutions, or you can use off-the-shelf pricing software.
Price management software automates the task of monitoring rival prices, as the name suggests. They will even change the rates automatically based on the rules you set.
It would be best if you did a price analysis to determine where you stand in the business environment before settling on a pricing plan. ZoomShift started by analyzing its competitors. Next, management measured the price index to discover a short-term competitor plan. Furthermore, to maintain and improve its competitive strength, the company constantly adjusted costs against the competition.
2. Identify your costs
Cost-benefit analysis entails adding up all project expenses and subtracting this number from the project’s projected revenue and profitability.
If the benefits of a project are greater than the costs, the project is viable. If the costs are higher than the benefits, it calls for a recalibration of the project costs.
Cost-benefit analysis is data-driven decision-making at businesses, both large and small. The fundamental concepts and structure can be extended to almost every decision-making process, whether business-related or not.
To begin the cost-benefit analysis, write a detailed description of your project’s desired results and outcome.
Once you’ve defined your program, you’ll need to provide a situational analysis to look at the current status, including background, current results, any benefits it’s brought to the table, and predicted potential performance.
Now that you’ve developed your framework, it’s time to categorize your costs and benefits into different types of buckets. Direct/indirect, tangible/intangible, and real are the three main divisions that costs and rewards fall under.
- Direct costs are often correlated with app development expenses. As ZoomShift developed its app and pricing model, the company had to consider the number of hours it took its app developers to build and test the platforms.
- Indirect expenses usually are indirect costs that come from a department’s or cost center’s overhead.
- Payroll, leasing, and equipment cost are examples of tangible costs that are straightforward to calculate and analyze since they are linked to a specific source or asset.
- Intangible costs, such as fluctuations in customer satisfaction and productivity levels, are difficult to define and quantify.
- Real costs, such as labor and raw materials, are expenditures incurred in producing a product.
It’s time to start crunching numbers now that you’ve created the segments into which you’ll sort the costs and benefits.
3. Know the spending power of your target market
Loyal customers help a business grow faster than sales or marketing.
Seeking customer feedback is the first step towards driving customer loyalty. It would be difficult to build consumer loyalty if we don’t understand the factors that drive customer satisfaction.
Customer loyalty ensures repeat purchases that drive a company’s topline and margins. This growth starts with gathering customer feedback.
Here’s how it worked for ZoomShift:
- The company asked for customer feedback.
- The marketing team organized the feedback into categories.
- Sales and marketing took specific actions based on the feedback.
- Finally, the marketing team sent personalized messages to thank customers who shared feedback.
These four steps form a feedback loop, and it is vital to close each feedback loop. Customer engagement tools that analyze customer feedback are perhaps the most powerful resources in the hands of SaaS teams when it comes to developing their products. After all, aren’t you creating the product for your consumer?
You need to contact your customers to understand their price expectations, budget, and spending power. Otherwise, your audience will leave you in search of a more affordable alternative. Sending follow-ups and survey request emails often help to ensure that more of your past customers provide feedback. You can consider using an email finder tool to make sure your emails reach the right email addresses.
You may also utilize review sites like Capterra to discover what people think about your products.
The reviews about ZoomShift are overwhelmingly positive. When you scroll down to the reviews, you’ll see that customers also feel they’re getting value for their money. This indicates that its current price point is where it needs to be, given the features the software offers.
4. Do a competitor analysis
Keeping track of your competitors is vital to stay relevant in the market. When ZoomShift as performing competitor analysis, the company listed its top five competitors in each of the following categories:
- Direct competitors: These are composed of businesses offering the same or similar services or products to the same audience.
- Indirect competitors: These are businesses that provide customers with the same or related services and goods in the same place but serve a different function or intent or reach a new audience.
- Tertiary competitors: Brands that service the same customer segment but with different products and services. These brands are not competing directly with you.
Here are the steps you can take to conduct an effective competitor analysis.
- Examine the sales strategies and results of your competitors.
- Examine the prices of your competitors, as well as any additional benefits they provide.
- Ascertain that the delivery rates are reasonable.
- Examine the marketing strategies used by your competitors.
- Keep an eye on the content strategy of the competitors.
- Learn from your rivals’ technology stacks.
- Examine how they sell their products.
- Examine their presence, tactics, and preferred sites on social media.
By examining your company’s sales and marketing efforts using the same metrics you use to assess your competitors’ actions, you can track campaign effectiveness objectively.
5. Identify the best strategy based on your business model
Strategic development, like visioning, isn’t something that can be done on the spur of the moment. ZoomShift normally combines strategic planning sessions with a SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis where it identifies the areas they are strong or weak in and external factors that could help or diminish the business.
Here are six measures to help you develop and follow the right company strategies:
Create a clear picture of what you want to accomplish: ZoomShift’s company goal is to “Save our customers time and give them clever insights to help them make more informed business decisions”. This mission statement guides the company in everything it does. If its employees find that they’re doing something that doesn’t contribute towards achieving the goal, they drop it immediately and focus on other tasks.
Establish a competitive advantage: The company has identified how they offers unique value to your customers: “Our scheduling templates save you hours by letting you quickly copy and apply schedules weeks in advance.” Otherwise known as a “unique value proposition, “ your competitive advantage should reflect unique product benefits, pricing model, or distribution mechanism, among others.
Define your targets: Clearly defined target audiences allow a business to develop an effective sales and marketing strategy, in which marketing aids sales efficiency. When you set clear sales and promotion goals aligned with your product roadmap, you are more likely to meet them.
Concentrate on long-term development: A company’s business strategy should specify the market segments it will focus on and its projected product mix to calculate a clear net margin outcome. After reaching those decisions, your organization can determine how much overhead and other costs it can handle.
In Conclusion
To summarise, pricing is one of the most critical facets of the market approach, including marketing, positioning, and delivery. It’s important to get this right if you want your company to grow.
There are two sides to any pricing plan. It’s impossible to please everybody. However, keep in mind that you’ll need to use a tailored tactic to your target market if you want the buyer to purchase your product.
Bio
Owen Jones is the Senior Content Marketer at ZoomShift, an online schedule maker app. He is an experienced SaaS marketer, specializing in content marketing, CRO, and FB advertising. He likes to share his knowledge with others to help them increase results.