To increase sales on the Internet and make them predictable in the future, pricing plays a role that goes beyond simply balancing production costs with profit margin!
When pricing is part of your Digital Marketing strategy, it gains the potential to directly influence the perception of value and the purchasing decision of your next customers!
If until now the act of deciding what price to set for your products or services has been limited to a mathematical formula with the aim of only generating money on top of expenses — instead of growing infinitely above that —, I want to show you a better alternative!
You will learn in this article:
- What is pricing;
- What is the difference between price and value;
- The importance of pricing in Digital Marketing ;
- And how to use your offer prices to sell even more!
Doubt?
So stay with me until the end: I guarantee that you will leave here with much better preparation (and planning) than the industry taught you to think!
What is pricing and its importance in the Marketing Mix
The Marketing Mix is a group of controllable elements that companies, like yours, can use to influence and meet customer needs in a more:
- Creative;
- Efficient;
- Shocking;
- And profitable!
Pricing is the act of deciding what price to set for a product or service depending on your company’s goals and the customer’s purchasing moment — and because it is one of the most important variables within the sales strategy, it deserves your team’s full attention!
When you decide the price of a product or service strategically, aiming to achieve an executive-level goal (such as market dominance or an increase in overall revenue), you stop evaluating this value independently and start assigning it based on a factor that goes beyond the cost of production.
This factor is the value of a product or service: how valuable this solution is at a qualitative level in the lives of its consumers!
Value and price may seem like similar words, but in practice they point to distinct characteristics of an offer, since:
- Price is just a number — a limited index that illustrates how much someone actually has to pay to acquire something;
- Whereas value is a quality — an independent estimate of a number and based on how much your solution can make your customers’ lives easier (and how much they are willing to pay for it) in a way that no other competing solution can!
Instead of following your competitors’ lead and simply doubling the selling price of a product or service based on how much it cost to create it, you start thinking:
- How useful your solution is to the consumer (the value);
- How this utility relates to your company’s financial objectives (how it helps you achieve your goals);
- And how to price such a solution on top of that (ultimately defining the price)!
The relationship between the value and price of your offer now depends on how unique it is for your perfect audience, no longer using competitors’ prices (or the norm in your sector) as the only reference for making this impactful decision!
Below you will see how to apply the value of your solution in calculating the final price that will reach your customers — and how to consider all the necessary variations to increase your chances of selling much more over time!
How to price a product or service?
To price an offer strategically , you need to identify the balance point between:
- The cost of producing your product or service;
- How much this solution can positively impact the lives of your potential customers;
- And how much these people are willing to pay for this change!
This means that a product that is cheap to produce, but capable of generating absurd transformations in the lives of consumers , should not be priced taking into account only the production costs!
He should take into account:
- The viability of your product or service, which indicates how viable the production of these items is for your business — and whether there is even a demand for them;
- How much it would cost the customer to achieve a result similar to what you offer, but in a different way (whether alone, through more or less effective alternatives or through your competitors’ offers);
- And what would be the ideal profit margin to cover manufacturing costs and bring your company ever closer to its profit goals!
All of this points to the fact that pricing is not a calculation in which one plus one will always equal two!
In reality, pricing varies from audience to audience, from season to season and, most importantly, from strategy to strategy!
As different markets (formed by their different consumers) will be at different moments of proximity to your company (and also to its value proposition for them), pricing will reflect the current sales scenario of your business for each of these markets!
When entering a new market to conquer it quickly, for example, investments will be a little higher and, perhaps, the public’s willingness to buy will be low until the strategy takes hold.
As you will be looking for a way to gain space in the sector by doing marketing research and campaign testing, the average ticket (and pricing) will reflect this initiative and will not always seem promising — at least, not at first glance!
However, once solidified, and once you dominate the market, your company will need a different pricing strategy: one that will not depend so much on investments (because it will take advantage of the new popularity of your product or service), but that will aim to defend this positioning for as long as possible!
This will increase the average ticket because you will have accumulated an understanding of the public and will know exactly which consumer profile will be more likely to pay for what your company offers — which will reduce the budget needed to make Marketing run smoothly from now on!
More than common sense or a cake recipe, pricing is a mirror that demonstrates how welcome (and necessary) your solution is both for those who buy from you and for the reason why your company decided to sell such a product or service!
Markup and contribution margin
As you can see, pricing does not ignore the markup or the contribution margin — two fundamental pieces of information when it comes to understanding the viability of a product or service and bringing profit to the business!
Markup, usually illustrated as a percentage of the production cost or final pricing , is the difference between the selling price of your offering and how much you invested to produce it.
The contribution margin is how much revenue is left over from a product or service after subtracting the expenses and investments to make it available to the public.
Both are very welcome in pricing in a Marketing strategy because they help to define the final prices, covering the costs and profits to be reaped for each stage of your sales planning!
Despite being the variables that most influence the final price of an offer at the stage it is in (whether to win over the public or maintain positioning , as in the example I gave earlier), the markup and contribution margin do not do this work alone!
Competition-based pricing strategies
In fact, even the prices charged by your competitors can inform your pricing strategy!
Conducting a competition analysis is not the same thing as copying your competitors’ prices, but rather understanding what the cost of penetration of your offer in the market will be — and what the right strategy is to introduce it!
The practice of “skimming” is a great example of the type of result you can get from an audit of your competitors , since skimming is a marketing strategy that aims to present your product or service to an audience, starting with the highest value on the market and then reducing it.
This strategy will ensure that your company stays ahead of its competitors dominating the market, as your business will have lower prices over time (but without hurting profitability), especially when compared to new competitors — who will probably not be able to compete with you in this planned downsizing!
Stopping looking at price as a fixed index ends up being extremely advantageous — and that’s why pricing makes more sense in the hands of Marketing , rather than solely in the hands of the executive team’s financial calculations!
What factors influence pricing?
Pricing a product or service cannot be a strategy with the sole purpose of being comfortable for your company!
Many brands offer higher prices just to appease executives’ ambition to make a profit faster, or lower prices than they should to avoid the anxiety of imagining a product sitting on the shelf.
Both cases are wrong, since the true function of deciding the price of an offer is to bring a business closer to the goals it wants or needs to achieve — something that can only be done with research integrated into the sales strategy through Digital Marketing!
For this reason, before even discussing prices, your business needs to be extremely clear about what competition tactics it will use to get where it wants to be.
Michael Porter, one of the most respected economists in the world, points out in a simplified way that there are basically two ways to compete in the market:
- One of them is price competition;
- And the other is competition for differentiation.
When your business enters a price competition, it will need to look at what competitors are charging — without ignoring what customers are willing to pay — to set the lowest number to charge that will allow you to enter (and protect your positioning) the market!
To bring the cheapest product to consumers in the price competition, you need to monitor all of your brand’s costs in full (going far beyond marketing investments) so that it remains within a healthy range of growth in the short, medium and long term.
These expenses involve your investments in customer service, production and marketing budget, and things as basic as renting a physical space or setting aside money to deal with emergencies and errors.
The hardest part of this strategy is finding solutions capable of generating nutritious fruits to meet your goals within this budget, which ends up being more restricted when compared to a competitive strategy for differentiation!
In a strategy focused on differentiation (rather than lowest price), your business invests resources in the production and promotion of a product or service that goes beyond the basic function provided by similar offerings on the market.
In this case, it is possible to set the initial pricing of a product or service (for market entry) at a higher number than the offers of its competitors — but with eventual discounts planned to break the dominance of competitors and increase its reach over new buyers!
An example that clearly expresses the difference between price competition and competitiveness is Dove.
Everyone knows what the simplest function of soap is: to clean the human body!
In this basic form, all a soap needs to do to compete in the personal care market is be:
- Smelly;
- Colorful;
- It’s cheap!
But Dove soaps aren’t just for cleaning your body! They have an extra function, far beyond the basics : they cleanse your skin and moisturize it at the same time!
By offering this differentiation compared to similar items on the market, Dove can charge more than a regular soap on the shelves!
However, even in this case of a special soap that combines two products in one, the soap is still a soap!
Therefore, it is necessary to determine the maximum that the public is willing to pay for this item and carry out pricing based on that (in conjunction with the factors presented previously, such as markup and contribution margin).
Identifying the ideal price for the moment in which the company finds itself with the offer (whether for market penetration, acquisition of a new audience or sector dominance) is only possible through planned Marketing tests!
Only after this identification will the price be compared with the budget, since the definition of your budget cannot be used to decide, individually, on the final price of your product — otherwise, your business loses a good deal of competitiveness!
The function of the available budget is to be used to evaluate the pricing possibilities in the market to extract the most from it (at the most strategic price in a context in which your company finds itself) and reevaluate this position as the objectives are achieved!
Continuing with the Dove example, if they only considered their available production budget (looking only at which formulas chemical engineers consider ideal for creating the perfect moisturizing soap), they would charge exorbitant prices!
Of course there would be a percentage of consumers willing to pay more for the brand’s soap, but perhaps not in the quantity necessary for the business to remain profitable (and grow) from the sale of this product!
It would be better to use product engineering to dialogue with the brand’s financial objectives, create a perfect moisturizing soap (but only within the realm of possibility) and then do the cost and pricing engineering!
This wouldn’t mean skimping on ingredients or creating a mediocre product, since poor quality doesn’t sell (at least not to the point of elevating a company from medium to large).
It would mean finding a balance between the brand’s financial objectives and the general costs of production or business expansion, and only then pricing an assertive value for the customer: a number capable of transferring part of these expenses to the product without compromising its output (and profitability)!
If Dove were to create the world’s greatest soap, spending a fortune to create the perfect item, they would risk having an extremely differentiated offering in the market, but with such a high exit cost that they could not increase the price at all!
It would be forced to do what many companies do: reduce the quantity of the product (perhaps in conjunction with increasing the price), running the serious risk of damaging the relationship of trust and loyalty on the part of older customers — accustomed to the previous price and quantity.
This frustration (both for customers and for the growth of your brand) can be avoided with a pricing strategy that relies on Digital Marketing — that’s why it’s essential to have a consultation of this type to determine your business’s medium and long-term goals!
Pricing as a successful marketing strategy
Such a pricing strategy will also put factors at the tip of the pencil that go beyond the production of the product or service , and beyond the financial objectives of the business!
Among the most important, I think it is important to highlight qualities such as:
- The life cycle of the product or service (fundamental for determining the recurrence of purchases by customers and the profit generated from this);
- The offer launch plan;
- As well as the product line growth strategy (even in relation to other products or services offered by your brand);
- With the peak of maturity of your line of offerings (or the potential for its extension);
- And the time it takes for it to decline after the peak (which will influence the urgency in producing or pricing this and related offerings).
Business plans are the pricing blueprints that build the walls of your business.
Without them, no brand can survive!
Dynamic Pricing and Real-Time Marketing
A traditional brand from Rio Grande do Sul, with over 60 years of experience in the sector and charging prices above the market average, will not be able to charge the same price if it decides to expand its activities to Bahia, for example!
Understanding the variation in public behavior for each region or segment (in the case of online sales) is essential to discover how to adapt your pricing to the different markets in which your company aims to operate!
As the market varies based on how the public perceives your brand, you will notice that certain pricing strategies will change completely depending on the consumer’s familiarity with your offering.
On the Internet, this variation is even more important, since different platforms or audience segments function as small regions in the virtual universe — and your company will need to adapt to them in real time!
This is only possible thanks to the “Digital” part of Marketing: the potential to collect data about people and their behaviors, to inform sales strategies and adapt them to these different groups!
Such adaptation will involve:
- Studies on which language to use to communicate with the regional or segmented market;
- What price would be ideal to present a product or service, attract an audience, dominate or defend a position in that niche;
- And which seasonal events and times specific to the region or consumer group will be the most relevant to present your promotions or the insertion of new offers!
My tip is to approach new markets with the perspective of a new company, building an unshakable reputation from scratch, even if in less time (since your business, thanks to Digital Marketing, will already know which is the perfect audience to delight and what behaviors they have in common with your older buyers)!
When we talk about profitability, the entire sales dynamic depends on different contexts.
Thanks to the latest Internet technologies, your company can have granular control over how the public perceives your offerings — including how much to charge for them based on your needs!
Sales promotions
When talking about different sales contexts, I can’t help but mention promotions!
Every promotion aims to integrate pricing with specific or seasonal strategies to win customers based on different objectives — even if, in the end, they all result in more sales!
Whether it’s to attract new audiences, encourage trust or keep products or services coming out during periods of stagnation, promotions try to plug the gaps in the market and establish your business as a market leader!
The result of this proactivity is not limited to the increase in cash flow, but expands to the greatest advantage brought by Digital Marketing: the predictability of your sales for the coming years!
Pricing Monitoring Metrics
The last factor to be observed is the results of your pricing strategy, precisely to adapt them in real time with the intention of maximizing profits in the next periods or future sales campaigns!
To make this measurement, you can use Marketing KPIs (which are Key Performance Indicators) that function as goals in your brand’s success journey .
With each KPI achieved (each goal reached), your business will be closer to its executive objective: be it achieving an ideal percentage of revenue, or expanding your company’s authority to other regions or market segments, for example!
To achieve these goals, pricing will need to adapt to the urgencies of the moment . Not as a reaction, but rather as a previously considered tactic: an action plan for before action is needed!
In the same way, depending on the case, the choice of goals to be achieved will need to consider the current pricing strategy within the cycle in which each of the profitability elements of your business coordinate with each other to meet your company’s growth mission!
Once again, context is the most important thing when selling online — and in the digital landscape, you have all the tools you need to analyze these transformations at your fingertips!
Is your offer the right value?
I bet you’ve never thought about pricing the way I’ve presented it to you in this article — and that’s a great sign!
It means you have the opportunity to immediately apply everything you learned here to give your customers the best your company can offer them:
- From the production and distribution of your products or services that make people’s lives easier (and your business richer);
- At the final price they pay (and the value generated for them because of it)!
Pricing as a strategy under the responsibility of your Marketing team (or your partner agency, as Enjoy Minder does for giants like Casa Valduga and Cresol) takes into account:
- Production costs;
- Investments in broadcasting;
- The markup, which is the difference between the final price of your offer and how much you invested to produce it;
- The contribution margin, which is how much revenue is left over from a product or service after subtracting the expenses and investments for their dissemination;
- Your business’s sales cycles;
- The lifespan of your product or service;
- And even the level of maturity of consumers in each market that your business wants to dominate!
Now that you know how to get rid of guesswork and choose the most strategic price to sell much more over time (and make real profits for the next decades), you can test your practical knowledge by completing Enjoy Minder’s Digital Marketing Diagnosis!
In addition to being 100% free, the diagnosis from our team of experts will make it clear which other factors you will need to consider (in addition to pricing) to transform your business into the market leader!
Access the Enjoy Minder diagnosis now and receive the step-by-step guide to selling like never before:
- Any type of product or service;
- Distributed anywhere in the country;
- For your best internet audience;
- And at the best price — both for your audience and your brand !
What you need to choose is whether you want to make your company a millionaire now or one day in the future!
In my opinion, the sooner you start, the better!
