Simple Pricing Strategy (Or Not So Simple)

Pricing isn't just a number about cost and profits; it's a narrative, a form of storytelling. It's the story we tell others (and ourselves) about the value of what we provide. It is also the way to capture value in return and keep your business alive. Let's do some math.

Product total cost: $11.00

Sale Price #1 = $14.00

Sale Price #2 = $17.00

If you price your product at $14.00, you are making $3.00, whereas at $17.00, you make $6.00. In essence, you are doubling your profits by selling at $17.00 and, assuming all other factors are the same, you are also reducing your need to sell as many units. It will take just half the number of units sold to make the same profit at the higher price.

Then there is the factor of choices or alternatives. The customer can always choose not to buy, or if there are other options or substitutes, to go with them.

What about the story you are telling with your price? What if instead of $17, you price at $40.00, and all costs remain the same? Is there a story you can tell that will justify a significant price increase? Now, it is an entirely different product. Many Lexus models are the fancier versions of other Toyotas, opening the door to a new story and a new market.

You can also go the other way around and not be wrong; you can price lower and ensure a profit to stay in business and sell many more units because now you are targeting a different market. Is it still the same product? Maybe yes, maybe not.

At the end of the day, you can work hard and try to influence the market, but make no mistake—it's the market that will ultimately determine your price, based on how much they are willing to pay before they consider moving to the next option or decide not to buy at all.

Until the next one,