Every day, I get an email about a must see webinar that’s going to show me the secrets of the marketing universe. That’s cool, I’ll pass. It’s no longer an effective niche marketing strategy.
That’s because webinars have been beaten to death in my space. Most of them are thinly veiled sales pitches. Conversely, webinars in the health and fitness space are still bringing in crazy amounts of leads and revenue.
Every niche is different. What works in the marketing space may not work in the health and fitness space. What works in the health and fitness space may not work in the home décor space.
In an ideal world, you could apply any niche marketing strategy across the board. This isn’t an ideal world.
This post focuses on strategies that have been proven to work time and again. At least one of them will be effective for you.
User-generated content (UGC)
What many people don’t realize is that all social proof isn’t created equally. Some carry more weight than others.
For example, there are many ways to communicate wealth.
You can tell them which is low-quality proof
A stranger can tell them which is much better
A close friend can tell them which is incredibly effective
They can find out on their own which is the most powerful way to convey that information.
UGC is a powerful marketing strategy it’s like a friend or a stranger telling them. It’s unsolicited and shows the effects of your product or service in real life.
UGC can take many forms but the most popular are shots of your products in use.
The majority of content on Asos’ Instagram page is produced by their customers. In the image above, the ones with a red outline are UGC. It curates images that showcase the lifestyle it champions as well as the type of customer it’s targeting.
When a prospect sees the page, they’ll understand that:
It’s a popular brand
It’s geared towards a younger demographic
The personality is playful
Asos has a huge collection of products so it highlights collections rather than individual pieces.
Frank Body is another brand that uses UGC well.
Since it has only a handful of products, the UGC highlights individual products and use cases. On a side note, Frank Body has one of the most irreverent and unique voices I’ve seen.
Before utilizing UGC, think about where you’ll promote and distribute it. Are you going to create a page on your website, use social media, or send it out regularly in your emails?
Niche forums
There was a period where there was an app for any and everything. The same can be said for niche communities. Almost every niche imaginable has a forum or group dedicated to it.
In fact, if the niche has potential then there’s a forum for it.
To find useful forums for your niche marketing strategy then you may have to do a bit of digging.
Google is great for this.
Create a list of your major keywords. If you’re in the travel space then you may add Asian travel, European travel, or African travel as the keywords. Keep going until you have at least ten keywords to work with.
When searching for forums, put the keywords inside of “quotations.” This lets Google know you’re looking for the phrase as opposed to individual words. You’ll also add a + symbol before the word forums.
For example, if you’re your keyword is horn-rimmed glasses then you’d search for “horn-rimmed glasses” + forum.
While the results don’t show a forum dedicated to horn-rimmed glasses, it does show forums that have relevant content.
Once you surface a few sites that show promise, find out whether or not they’re active.
Navigate to the homepage of the forum and check the number of threads, posts, and recency.
In the above example, you can see there are a lot of threads and each one has tons of posts. They’re also recent.
In-person events
It’s harder to ignore or say no to someone when you’re looking at them in the face.
In person events (also known as event marketing) may not be as scalable but are a great way to connect with prospects who wouldn’t interact with you otherwise.
You can give hands-on demos, field questions, or just build relationships. Host them yourself or in a together with complementary businesses.
The key is to deliver value to the attendees that goes above and beyond another product pitch. Event marketing is a detailed and nuanced undertaking that pays in relation to the investment.
If you put it together in a weekend then it may not give you the results you’re looking for. Don’t jump in here unless you’re ready to go the distance.
There are many types of events but the ones you’d most likely host are seminars and networking events. Seminars focus on education as a route to selling. You teach people how to solve problems relevant to your products.
For example, if KyLeads were to host a seminar, we’d teach people about content upgrades, generating leads, and different types of segmentation. We’d subtly place our product but that wouldn’t be the focus of the seminar.
Networking events showcase your expertise while bringing people from diverse backgrounds together. Yes, your products will be displayed but just like with seminars, that’s not the core focus of the event.
You create goodwill and when it’s time to buy a product like yours you’ll be at the top of the list or may be the first one they recommend.
Specialized social platforms as a niche marketing strategy
When people think of social media, Twitter, Pinterest, Instagram, Facebook, etc. come to mind. They control the attention of billions of people so it’s only natural that they’ll be at the top of your list.
There are hundreds if not thousands of social media platforms.
People are moving away from the biggest platforms because they’re one size fits all. They want an experience that’s better tailored to their unique interests. That’s where specialized social media platforms come in.
They serve as a way for strangers to become friends through their shared love whatever it is they love.
It’s a ripe hunting ground.
When you find the right platform for your business, you can be sure that most if not all of the users are potential customers. Finding them is the hard part.
For that, we again have Google.
Simply type in your keywords plus social network and you’ll likely find a few social networking sites.
Dog lover social network brought back a few promising results to dig into.
One that stood out is named Dogster. It’s a combination news website and social platform.
If this doesn’t yield any results, you can use tools like Social Mention or Buzzsumo to track competitors and see where the people who mention them congregate.
Micro Influencer Marketing
Influencer marketing is all the rage and it’s getting more popular by the day. By the end of 2019, influencer marketing spend is expected to reach $6.5 billion.
In a poll by Tomoson, it was found that businesses generate $6.5 for every $1 they spend on influencer marketing.
It can be an effective niche marketing strategy but not all influencer marketing is created equally. There are influencers with huge audiences numbering in the millions. This may seem like a good thing on the surface but the problem is that the targeting becomes diluted.
Micro influencers – those with 2,000 to 50,000 followers on a single platform – tend to have a deeper connection with their audience and a more focused niche.
When you tap into them you tap into an audience that cares about what the influencer is doing. The campaigns you create together are more effective and much cheaper.
There’s just one thing. Because they have less visibility, they’re harder to find. Here are a few ways to go about it.
Search your follower list. Do any of your followers fit the criteria mentioned above?
Check your branded hashtags. You do have some right? Are the people using your branded hashtags sporting a decent following?
Use niche specific keywords and hashtags. These aren’t peculiar to your brand but can still turn up some gems. Create a list of 10-20 top level keywords and dig through the results. Shortlist any promising profiles you find and reach out to them.
Before you get started with any influencer, do your due diligence. Not all that glitters is gold.
Syndicate to industry publications
The same way every niche has a forum, they also have dedicated publications. These are incredibly effective at building credibility and getting in front of the right people.
If you were in the business and marketing space, you’d want to get syndicated on publications like Inc. Fast Company, Entrepreneur, or Forbes.
If you were in the health and fitness space then publications like Men’s Health, Shape, or Flex would be ideal.
This strategy has a lot of nuances but I’ll give you a quick overview.
Find websites that target a similar audience as you.
There are a few tools that help you do this like Alexa, Ahrefs, and Similarweb. Add the sites with overlapping audiences to a spreadsheet and confirm that they have more online authority than you.
Check if they syndicate content
Not all websites are open to syndication. A simple way to find out is doing a quick search in Google with variations of “originally appeared on” plus syndication website URL.
That would look like this:
It seems that Forbes likes to syndicate content from Quora.
Check where your competitors have syndicated content
If a website has syndicated for your competitor then they’re likely to syndicate for you too. Use competitive backlink checking tools to find out where the competition is getting links.
Pitch content that’s relevant and beneficial to the target site
This is the most important part. Your pitch must be relevant. At KyLeads, we get tons of half-baked pitches. They’re automatically deleted and that’s why we don’t publish many guest posts.
Save everyone’s time by pitching relevant content. In fact, you can create the content specifically for the website then pitch it.
Create simple tools
This is one of my favorite strategies and one we’ve put on our to-do list for longer than I care to admit. People are used to paying for tools and software that solve problems for them.
When you give away high-quality tools and software for free, it’s a no brainer.
The key is to create something useful to people in your niche.
All they did was cobble together a bunch of high-quality images and let people use them however they wanted. The internet went crazy.
Your tool doesn’t have to be complicated. We’ve given away calculators made with excel spreadsheets and people were grateful.
It, above all, needs to be useful. That’s the only criteria. If you can create software then even better.
Look around your space and ask yourself what’s a common challenge people have that can be solved with a simple tool.
If you’re in personal finance, you could make a budget calculator. If you were in the fitness space, you could make a BMI calculator.
The list goes on.
Bryan Harris of Video Fruit took the technique to heart and has made almost a dozen free tools for his audience. It includes everything from welcome pages to email marketing templates.
The collection has gotten so large that it has been moved to its own website called Growth Tools.
CoSchedule made one of the most popular headline analyzers which is responsible for a huge chunk of its traffic. CoSchedule is a tool for marketers so a headline analyzer was the perfect simple tool to give away.
Conclusion
The niche marketing strategy you choose depends on a number of factors such as your budget, products, and market.
When you find the one that’s a good fit for you it’ll deliver better ROI than mainstream channels because it targets more of your ideal customers.
Choose a few from the list and give them a test run with a small time or cash investment. Keep the ones that show promise and ramp up until it’s delivering a steady stream of leads and customers.
Let me know what you think or if you have a niche marketing strategy you’d like to share.
The ads they use are uninspired (to put it lightly).
Many businesses have had to close their doors because they were, without their knowledge, practicing marketing myopia.
In this article, we’ll look at what marketing myopia is and the impact it can have on your business. More importantly, I’ll share a way to move beyond marketing myopia and build what your customers love to achieve lasting success.
What is marketing myopia?
The phrase was coined in 1960 by Theodore C. Levitt. It’s a theory that states companies focus on their needs and short term growth strategies. They neglect the needs and wants of their customers and fail as a result.
In short, businesses are busy selling what they have instead of improving it based on what their customers tell them. The market votes with its wallet and will force anyone out of business who doesn’t meet its needs.
The perfect example of this is Blockbuster. People were leaving the video rental service behind and instead of making the painful changes needed to survive, they buckled under the pressure.
There are countless examples just like this. Huge as well as small businesses were doing well for a period but failed to adapt to changing times and were left in the past. A few examples:
Circuit City
Nokia (Microsoft bailed them out)
JCPenny
Kodak
These are just the notable ones. There are countless small businesses that’ve failed under similar circumstances.
What causes it when people should know better?
What causes marketing myopia in the first place
There are many reasons. Some say hubris and some say it’s naiveté. In reality, it’s a mix of both. One of the most common causes is the business landscape.
Growth industries
In the mid to late ninety’s the internet was the only place to be. If you opened a website and got a few people to visit it then investors would be throwing millions of dollars your way.
It didn’t last long.
Almost overnight, the bubble burst and billions of dollars in value were wiped out. It’s not that the companies weren’t innovating – they were. It was innovation in the wrong direction. They created products people didn’t truly want or were too far ahead of their time.
Webvan tried to pioneer online grocery delivery and was valued at over a billion dollars with 4,500 employees. They couldn’t get their business model or message right and went bust in two years.
In 2010, Bitcoin was worth $100. At the beginning of 2018, it peaked at nearly $20,000 a pop. If you would’ve invested $20,000 in 2014 and sold at the peak, you’d be a millionaire many times over.
Bitcoin is a bit abstract and it’s not technically a business. The Dot Com Bubble was almost two decades ago. We’ve learned from our mistakes right?
Not exactly.
Just a few years ago, Juicero received millions of dollars from investors and was considered a Silicon Valley darling. It produced an expensive juicing machine with expensive refill packs. It said the packs needed to be squeezed under high pressure only the juicing machine could produce.
Those claims were proven wrong by two reporters from Bloomberg who squeezed the packs by hand.
https://youtu.be/5lutHF5HhVA
It suffered from marketing myopia because it fooled their customers in the hopes of short term gain. Did it believe no one would ever try to squeeze the packs by hand?
I wouldn’t buy a $500+ juicing machine that didn’t juice fruit, but if I did, my son would be the first one to squeeze the things by hand when I wasn’t looking.
The mystery would’ve been solved and millions of dollars saved.
Oh well.
Lack of competition
Innovation is expensive because you invest a lot of money for products and services that may not catch on.
If no one can challenge you and people are patronizing you, there’s no incentive to innovate. You can get by doing what you’ve always done.
Eventually, competition will come out of the woodworks and even though they may not be as cheap as you, they can compete on different aspects.
An example of competition is Google and DuckDuckGo. While it’s not hurting Google’s revenue, it’s a viable option if people don’t want to be tracked while using search engines.
A more serious example would be Standard Oil or the railroads in the late 1800’s and early 1900’s. John D. Rockefeller created one of the most successful companies to have existed up until that time.
They controlled the entire value chain from production to distribution and the competition simply couldn’t stay afloat. The ones who tried were bought or run into the ground.
Eventually, the Supreme Court stepped in and disbanded the company in 1911.
During its most successful years, oil was cheap but there was no incentive to develop products that meet the needs of its customers or deliver top tier service. Either you bought what it produced or you didn’t. End of story.
It felt it was untouchable and its marketing myopia combined with the public outcry was its downfall.
Even if there’s no competition, continually innovate so when you do encounter competitors, you’ll be lightyears ahead of them.
Shifting consumer trends
They say the only constant in the world is change. In the 20’s women were required to wear skirts that were a certain length.
Now, well, that’s not the case.
People change. Things go in and out of style. Technology improves. In the early 2000s we were using AOL in my house. Now, I’m streaming Netflix on my LED TV.
As long as we have the ability to make decisions and change our minds, no product will last forever.
Do you remember fidget spinners? They were all the rage a few years ago.
https://youtu.be/Ge_22K0UTIY
Now, it’s part of a niche movement and most people can’t be bothered.
If you don’t keep an eye on the pulse of your industry and where people are headed, you’ll be left behind. It doesn’t matter if you’re doing a hundred dollars a year in revenue or a hundred million a year in revenue.
Implications of marketing myopia
You go out of business.
That made me chuckle.
The reality is that marketing myopia can eventually cause your business to fail. It doesn’t happen overnight.
First, customers become dissatisfied with an aspect of the product or service delivery. They’ll reach out, complain on social media, and a few will leave.
Over time, it compounds. Reviews turn negative, it’s harder to acquire new customers, and business gets worse.
That’s the tail end of it all. A business that fails to evolve fails. It’s pretty simple. Let’s say you used to solve the need of getting from point A to point B. At first, you did it with horses. After a while, you started to do it with trains. Finally, you adopted busses.
Now, your customers want planes. They’re expensive and you’re not interested so you ignore them. For a while, people will continue to use the trains and buses but more and more will leave you because they don’t want to use a bus to cross the country.
How to move beyond marketing myopia
In a word, customer development.
As far as marketing myopia is concerned, this is the universal panacea. The reason why marketing myopia affects businesses is that they lose touch with their customers.
Customer development makes sure you’re always abreast of the wants and needs of your customers.
There’s one note about customer development though, you can’t truly innovate if you only follow what they say.
Before there were cars, if you asked someone what they needed to get from point A to point B with more comfort and speed, they would’ve told you to breed faster horses.
When cars came along, horses were replaced in short order.
Understand the job your customer needs to get done but also think of novel ways to achieve the end goal. It’s a difficult road to tread but no one said your business would be easy.
Look at and understand their jobs to be done
We each have a job we want to get done when we buy a product or service.
You buy a pair of jeans to clothe you when you’re going out to the park as well as a night on the town. The jeans you wear for each occasion are different.
You may wear a suit to an important meeting.
Someone signs up for KyLeads to finish a different job. There are a few, segmenting their audience, capturing leads, and understanding their wants. It’s an intermediate step between interacting with their brand and becoming a customer.
People stop by Starbucks in the morning to drink coffee but the job they’re getting done is filling their stomach. If there’s a better or more convenient way to do that same job then they’ll ignore Starbucks.
I recommend the insightful book When Coffee and Kale Compete by Alan Klement to better understand the Jobs To Be Done Theory.
Only one solution can fulfill a job at once. Make sure it’s yours.
Customer development surveys
A great way to find out what people want from you is to run customer development surveys. There’s a lot of information about it around the internet so I won’t go too deep.
Here’s the basic premise.
You ask your existing and potential customers a series of questions about your products and services to better understand how they’re using it and how they feel about it.
Don’t send it to your entire customer base at once. Rather, segment them into different groups based on demographic qualities, psychographic qualities, or even behavioral markers. The choice is yours but make sure you’re tracking who’s getting the survey and why.
Optimize for the most engaged users, not the largest group
Ask open-ended questions that lead your survey takers
Request a phone follow up after the survey
Don’t put too much explanatory text or you’ll risk leading your customers
Keep them short and to the point. You can get more detail in the follow up call.
Conclusion
Marketing myopia has real implications in your business. If you’re not aware of it then a slow decline can set in right under your nose.
Knowing it exists isn’t enough though. It’s important to take action to prevent it from affecting your bottom line.
There’s a simple two-step process you can employ:
Understand your customer’s Jobs To Be Done
Send out regular customer development surveys and have conversations
Let me know what you think about marketing myopia in the comments and don’t forget to share.
We spend a lot of time on marketing, messaging, sales, and retention. There are countless articles on the internet covering those topics.
You know what’s surprisingly under-represented? Pricing strategies.
No one is talking pricing strategies because no one really understands it. Optimizing your pricing has a 4x greater impact on your revenue than acquisition.
The right pricing strategies are the difference between a business that takes off and one that barely breaks even.
We, obviously, want you through thrive. So in this post we’re going to cover:
The most important factors to consider in your pricing strategy
The different types of pricing strategies you can use to grow your business profitable from day one
The little known difference between pricing strategies and pricing methods
Psychological pricing strategies that’ll compel your prospects to buy
What to consider when crafting pricing strategies
Before we jump into the different tactics around pricing strategy, there’s a bit of information you need to have.
These are things related to your business, market, and customers.
Your pricing strategy is the way you price your products based on various factors such as costs, business goals, market segment, ability of consumers to pay, and the value you deliver.
Let’s look at these factors that make up a sound pricing strategy.
Who is your customer
This is one of the first things you need to take into consideration. If you read that heading and thought “well, everyone can use our product,” then you have a problem.
Even if everyone can use your product, not everyone will.
If you’re for everyone then you’re for no one.
3-4 segments can make up to 90% of your sales. The other 10% is the rest of the world.
When you figure out what your customers want and why they want it then you can craft your messages to reflect it.
It’s no longer a race to the bottom, instead, you can price based on the value you deliver.
What does your customer want to gain? What’s their desired outcome?
Why do they want that?
How would they describe themselves?
How important is solving the problem to them?
If you don’t have the answers to these questions, you may need to do a segmenting survey.
Know your COGS (cost of goods sold) for an effective pricing strategy
There’s a common statement in retail:
“We lose money on every sale but make up for it in volume”
No you don’t, you just lose a lot of money and go out of business.
Obviously, you need to turn a profit on every unit. For this, you have to understand your fixed costs and variable costs for every unit.
This is just as applicable if you’re selling online courses, jeans, or SaaS software.
Fixed costs are the things you have to pay for no matter how much you sell. An example would be office space and salaries.
Variable costs are the ones which are only incurred when you create or sell a unit. An example would be shipping costs when you send out a pair of jeans.
For KyLeads, we have negligible costs associated with good sold. Every customer we acquire sends the costs of delivering our software closer to zero.
Please note R&D costs aren’t included in your per unit cost. That’s sunk money, forget about it.
How much do you want to make
You didn’t go into business to join the struggle gang. No, you went into business to bring your ideas into the world and improve your life.
For that, there has to be profit.
You only realize profit when you cover all your expenses and have a bit extra.
Add up all your monthly expenses. Yes, I mean all of them.
This includes labor, rent, equipment, utilities, loan payments, etc. etc. This is the number you need to hit every month to keep the lights on and your doors open.
How much do you want that number to be? If you want to do a million dollars in profit then just add your expenses to that and you’ll know how much you need to make.
This is a tricky area.
Sometimes businesses forget to add expenses and undercharge for their products. At other times, they’re too eager to turn a profit and overcharge.
Create realistic estimates so your pricing strategy is reflective of your goals.
Consider where you are in your business right now and your current growth trajectory. If you’re growing at 15% a month can you realistically increase that to 25% a month?
What’s your real value to the customer
We’re against general discounts for a number of reasons. We’re also against competing on price
It’s a race to the bottom that forces you to make a lot of tradeoffs.
If we priced KyLeads at five dollars a month we’d get more customers but it would be a challenge to support those customers, continue development, and also market our product.
Remember those questions you asked about your customers?
What outcome do they want and why?
That’s tied to the value you have in your customers eyes. It goes beyond the outcome you provide.
Think about how you brand yourself and your products.
Are you a luxury brand or a bargain brand?
Do have testimonials talking about the way you’ve changed the lives of your customers?
Does your messaging appeal to the emotions?
Are you segmented along demographic lines or psychographic lines?
Together, all these factors affect how your customers perceive the value or return on investment you deliver. The more value someone feels they can derive from your products and services the more they’re willing to pay.
Leadpages and Instapage have essentially the same software.
They have completely different price points.
Leadpages pricing
Instapage pricing
When you go to an upscale restaurant you’re primed to pay more for a meal than if you go to McDonalds.
Yes, they may use different raw materials but that’s just a small portion of the price difference. It all boils down to value (or perception of value).
You don’t get what you pay for. You get what the business decides to give you at that price point.
What’s the competition doing with their pricing strategy
The last thing to take into consideration when crafting your pricing strategy is the competition.
Now, I hesitate to say this because obsessing over your competition is never healthy.
At most, use it as a sounding board for what the market will tolerate for comparable products and services.
It’s not written in stone.
For all you know your competition is undercharging. Also, they may be able to get away with a certain price because of their branding or because of the way they’ve targeted their market.
There’s no way to get a clear picture of the pricing strategy your competition employs.
If your competitors are charging $40 – $100 for products and you decide to charge $150 then two things can happen.
You position yourself as a premium brand and get higher quality customers or people ignore you as expensive.
We’ll discuss the psychology behind this. For now, let’s look at the most common types of pricing strategies and when to apply them.
Types of pricing strategy
When you break it down, there are many types of pricing strategies you can use for a new product or an old one.
The one you choose will depend on your answers to the questions in the previous section as well as your goals and branding.
For example, if you’re positioned as a luxury brand then you’ll avoid economy and penetration pricing and focus on premium or bundle pricing.
Let’s look at each one in turn.
Premium pricing (prestige pricing)
Premium pricing is a marketing tool in which higher prices are set to give consumers the impression of higher product quality.
This works when the business has a strong brand and is known for producing high-quality products. Consumers don’t always investigate deeply into the other options available on the market.
They have enough confidence in the premium product to justify the investment.
Bryan Harris sells coaching and services to help business owners build their email list. The prices range from $997 to almost five thousand dollars.
It’s possible to find products which promise the same thing for a fraction of the price.
Let’s move a little closer to home.
We all buy gas on a regular basis right? At the pump, there are three price points displayed.
I tend to stick with the normal unleaded, but when I’m feeling adventurous I’ll fill up with some premium liquid.
Premium pricing is a common strategy in the fashion industry. Designer brands, using the same materials, can mark up their products over 10x.
Think Louis Vuitton and Gucci.
Penetration pricing
Penetration pricing is a temporary pricing strategy designed to take market share from competitors. Companies use penetration pricing when they want to bring out a new product that has entrenched competitors.
There’s an introductory price that gets potential customers to try out the products. When they achieve their target market share, they increase the price.
This is not for every product.
It works best in markets where consumers are price sensitive and there is little difference between your product and the ones of your competitors.
Utilize this pricing strategy if you have the budget to push products out into the market quickly and can function with lower margins.
It wouldn’t make sense to sell your product at a loss and lose your business because of it.
Penetration pricing can attract the wrong group of customers or set the wrong expectations.
Conversely, you can achieve improve market share and create customers more quickly. Paired with a tripwire offer, they can increase your customer lifetime value.
Netflix started as a DVD rental service. Instead of a storefront, you’d order DVD’s online and they’d be delivered to you in a day.
At the time, they charged a dollar per DVD while stores like Blockbuster charged four to five dollars. Netflix has thrived while Blockbuster went bankrupt.
Economy pricing
Economy pricing is a pricing strategy which assigns a lower price to selected items. This could be to target a specific market or because production and marketing have been kept to a minimum.
Economy pricing is often used in the food industry. There are brand name items and the generic items that are made and sold by the grocery chain itself.
An example would be Heinz Baked Beans vs generic baked beans.
It’s not relegated to the food industry. It also happens in marketplaces where there is a lot of competition.
Fiverr is an example of an economy marketplace. Their value proposition is that you can get essential services done for your business starting at five dollars.
Udemy is another marketplace. They host courses but they don’t explicitly tell you the courses are cheap. Instead, they constantly reduce the prices of the courses hosted on their platform.
Price skimming
Price skimming is the opposite of penetration pricing. Instead of lowering prices, companies introduce their products at the highest price then lower them over time.
The first customers are early adopters who aren’t as price sensitive. When competition enters the market, the innovator lowers prices to attract consumers who are price sensitive.
This pricing strategy is ideal when you have a new product category ready to be introduced to the market. If not a new product category then a new take on an existing product.
This is what Apple did when they introduced the iPhone all those years ago. It wasn’t a new product category but it was a new take on mobile phones.
Price skimming can also create an early positive perception of your product. Buyers may perceive it as novel, high quality, and exclusive.
There’s a caveat before you engage in price skimming.
This works best with a large market. If the market is small you run the risk of alienating a large portion of it.
Difference between pricing strategy and pricing method
A strategy is a plan you use to achieve your goals while methods are the actual steps you take to get there.
For example, your strategy could be price skimming to capture an early adopter market and the method to achieve that could take the costs of producing your goods and adding a specific markup.
In this section, we’ll look at the different pricing methods you can use to achieve your pricing strategy.
Psychological pricing
The psychological pricing methods are often confused with a pricing strategy. Psychological pricing is a tactic used to arrive at a goal.
It’s a big topic in and of itself and we’ll look at the different types later in this post.
Psychological pricing uses the psychological impact numbers and the way they’re presented – to sway buyers.
In essence, you’re using a consumer’s emotions to influence a purchase decision.
The psychological pricing method you may be most familiar with is ending prices with a nine instead of a round figure. This is called charm pricing and it’s only touching the surface of psychological pricing.
Value-based pricing
Value-based pricing is a pricing method based on the value your products and services give the customer.
They either save other businesses time and money or make them money. An example of value-based pricing is Price Intelligently’s service.
They charge $45,000 to build a pricing page. It doesn’t seem reasonable at first glance but it’s the value they add on top of design and development that justifies their price.
This can be taken too far. Do you remember the lifesaving antiparasitic drug that was hiked 4000% by Martin Shkreli? Value-based pricing doesn’t historic prices into consideration because they have no bearing on the value your product gives today.
Businesses that offer unique or outcome focused products are in a better position to take advantage of value-based pricing.
SaaS companies that sell to other businesses like KyLeads are better geared to take advantage of value-based pricing because they solve problems.
Get feedback from your audience to understand how they perceive the value you deliver. Use surveys or interviews with different customer segments.
This pricing method focuses on what went into producing the product. You look at the materials, labor, and overhead costs then apply a markup to get your profit margin.
Note that you don’t add the research and development costs to arrive at the final sales price.
The biggest advantage of this pricing method is its simplicity. As long as you know all your expenses, you’ll be sure to sell at a profit.
A disadvantage is that you may be leaving money on the table. If you have an efficient production and distribution network, your costs may be well below that of your competitors.
When you apply your markup, you may end up charging much less than the market will tolerate.
Cost plus pricing is ideal when you have a contract with a supplier. It’s not ideal when you’re in a competitive market.
Demand based pricing
Demand based pricing is the pricing method that sets prices based on consumer demand (or lack thereof).
The willingness of customers to purchase a product at a certain price point is tested and the one that yields the highest profit is selected.
It encompasses price skimming, value-based pricing, penetration pricing, and bundle pricing.
It’s similar to value-based pricing because it takes into consideration consumer perception of value. It’s different because value-based pricing isn’t as elastic.
Price discrimination is the best example of demand based pricing. Airlines are good at this. You may pay a premium based on when you want to travel (going to Bali in the summer vs the winter) or receive a discount.
If you’re able to generate increased demand for a product with limited quantities then you’ll be able to take advantage of demand based pricing.
In a saturated market with consistent and high overhead costs, demand based pricing may erode your profits.
Bundle pricing
With bundle pricing, businesses sell groups of related products together at a lower price to the customer than if they’d bought them separately.
For example, you may buy a six pack of soap for $15 Instead of buying them separately for $4 apiece. This allows you to increase your order value while giving your customers a discount.
They’ve combined multiple courses into one product and gave a major discount. They also display the original pricing to give the offer context.
Intercom also does this by splitting their software into three pieces and bundling it together to arrive at a lower price.
Those are the major pricing methods. Next, we’ll look at the psychology of pricing and how you can use it to your advantage.
Psychological pricing strategies to give you an edge
The Psychology of pricing is a large and involved topic. Here, we’re going to discuss a few of the major psychological pricing strategies and the science behind them.
You won’t be able to use all of them because some are in direct contrast to each other. Let’s dive in.
Anchor prices when you have pricing tiers
We go through the world uncertain about many things. How to value the products and services we buy is one of them.
If a buyer was to state a lower price first then the seller would adjust prices accordingly during the negotiation. If the seller was the first person to present a price, the buyer would attach to that amount and negotiate differently.
In another study, groups were asked to estimate various quantities, stated as a percentage. One question was “what is the percentage of African countries in the United Nations?”
For each quantity, a number between 0 and 100 was determined by spinning a wheel of fortune in the subject’s presence. Different groups were given different numbers which had a marked effect on estimates.
For example, the medium estimates of the percentage of African countries in the United Nations were 25 and 45 for the groups that received 10 and 65 respectively.
Just like with negotiations, when a higher number is presented first, it becomes the anchor.
In your business, it’s possible to do that whether you’re in person or online.
This is especially effective when you have multiple pricing tiers. We read from right to left so when you present the most expensive tier to the left, it’s processed first.
That means the lower pricing tiers are anchored against your most expensive price. It’s a subtle yet powerful effect.
Crazy Egg presents their most expensive tier first and their lowest tier is all the way to the right. Since we read from the left to the right, the most expensive tier is the one we focus on first.
Show fluency with pricing
In a study to determine the effect number presentation has on the purchase intent of buyers, researchers used three different advertisements for a pizza deal.
In the first advertisement, people could order 3 medium pizzas with unlimited toppings for $24. For the second advertisement, people could order 4 small pizzas with unlimited toppings for $24.
In the third advertisement, people could order 3 medium pizzas with 8 toppings or 4 medium pizzas with 6 toppings at $24 each.
Instead of going for the deals with unlimited toppings which were objectively better, they chose the deals with number fluency.
6×4 = 24 and 3×8 =24.
The numbers are easy for us to process because, as children, we’re drilled on simple arithmetic (we learn addition and multiplication by heart up to a certain amount).
The ease of processing numbers in the study was mistaken for attractiveness in the offer.
In your marketing and sales material, present your offers in a way that’s easily processed by your audience.
$50 = Get 2 shirts for $25 each.
$12 = Get 3 widgets for $4 each.
Only include two multiples so it’ll be easily processed. Using 2, 3, and 4 to arrive at 24 reduces the fluency and effectiveness of this technique.
Use round numbers for emotional sales
Continuing with fluency, the roundness of your price ($200 is a round number as opposed to $129.34) can affect the perception of the offer.
When you have a round number, it’s processed more fluently. In a 2015 study, it was found that round numbers – because of their fluency – work well when the purchase is emotional.
The participants expressed the numbers “just felt right.”
Because of feeling right, positive reactions toward the product are enhanced. This is known as the rounded price effect.
How to use it in your business.
When people buy your products based on emotion then set the price to the nearest round figure. Remove cents and end it with a zero.
If your products are based on rational decision making then you’ll benefit from more specific prices. Implement charm pricing.
Real estate is an example of an emotional purchase that takes advantage of round numbers.
Have you ever seen a property listed with exact numbers?
Bundle products together
People only buy products when the pain of losing money is less than the benefits they’ll accrue when they buy. When you’re able to bundle similar products together, it reduces the pain of acquisition.
Bundling works best with products that inherently produce more guilt in the buyer. Luxury products or ones that allow people to indulge themselves fall into this category.
….framing the discount on the hedonic item provides a justification required to reduce the guilt associated with the purchase of such items. However, since no such guilt is associated with the purchase of utilitarian items, framing the discount on a utilitarian component of the bundle has little additional impact.” (pg. 18)
If you don’t have products in this category then describe the indulgent use for them instead of their practical application.
Another thing to note with bundled products is that inexpensive products shouldn’t be bundled with inexpensive products.
The inexpensive product reduces the overall perception of value.
In a study by Brough and Chernov, people were asked to choose between a one year gym membership and a home gym. 51% (or roughly half) chose the home gym.
When people were asked the same question but the home gym was bundled with a free fitness DVD, only 35% of people chose the home gym.
How to use it.
People don’t feel guilty about toilet paper but they can feel guilty about a luxury bag.
Bundle the luxury products with a similarly priced product to reduce the pain and guilt associated with buying the luxury product.
This can still work with practical products but it’s not as effective because there’s already a strong reason to purchase.
Briefcase by Appsumo bundles dozens of software products together for a low monthly price. These products aren’t exactly luxury but they aren’t necessities for all people.
It seems to work if their 800 customers are any indication.
Percentage off vs dollar off pricing.
Discounts are a proven way to increase total sales. Depending on the context and the amount of the discount, it may be less effective.
People are notoriously bad at calculating percentages.
In an experiment with Evo, there were two discounts. One was for 15% off and the other was $50 off. In reality, they had the same value but the $50 off offer was redeemed much more often.
It generated 170% more revenue than the 15% off coupon.
In a survey of 1,000 shoppers conducted by Blue Hornet, 42% of shoppers find a dollar amount off more appealing than a percentage discount.
When you discount your products, it has to be enough to get people to take action.
We tend to look at the figure when assessing the discount whether it’s in dollar amounts or percentages. A discount of 20% of $50 is the same as $10 off.
The 20% discount is more attractive.
Conversely, 25% off $1,000 is the same as $250 off but the $250 discount is more appealing.
Jonah Berger sums it up with The Rule of 100. If a product is less than 100 then use percentage discounts. If it’s more than 100 then use dollar discounts.
Focus on value of time spent instead of money saved
Certain products create an emotional connection with the people who use them. Many brands have figured it out with popular slogans like “Live Richly” and “Miller Time.”
They emphasize the emotional connection and the value that’s being delivered over the money being saved or spent.
Jennifer Aaker et al. analyzed 300 ads in Money, New Yorker, Rolling Stone, and Cosmopolitan and realized nearly half included a reference to time.
They posit that our relationship with time is more personal than our relationship with money.
In many product categories, especially ones that elicit emotional associations, you can foster a better perception when you talk about time.
“Ultimately, time is a more scarce resource — once it’s gone, it’s gone — and therefore more meaningful to us,” says Mogilner. “How we spend our time says so much more about who we are than does how we spend our money.”
When you’re positioning your products, think of the experiential aspect. Can your customer spend time with your products and build an emotional connection?
Concert tickets
Amusement parks
Games
Movies
Sporting events
Recreational products (beer)
Create the right context
Many marketers use comparisons to show how their product is superior and competitively priced.
According to Itamar Simonson, Sebastian S. Kresge Professor of Marketing at Stanford GSB, this may have detrimental effects on your ability to sell your products.
“Telling people to make comparisons, which is a practice that marketers use a lot, can be very uncertain because it can change the behavior of consumers in very fundamental ways. It can easily backfire. Consumers may decide not to buy at all to minimize what they perceive as a heightened risk instead of following the advice that the marketer had in mind.”
He went on to say that:
“The mere fact that we had asked them to make a comparison caused them to fear that they were being tricked in some way,”
The context of the comparisons needs to be correct in order for it to work. If you’re comparing your product to a competitor just because you can then it may backfire.
Instead, compare your products to your competitors only when you have a reason for the price being different.
For example, you may be selling a cheaper pair of jeans and want to let your customers know. Instead of just telling them yours is the cheapest, which may create questions of quality, let them know why.
That could be because of better manufacturing processes, better suppliers, control of the supply chain, or anything else.
Give a reason why.
That will go a long way towards alleviating the fear of being tricked.
Robert Cialdini popularized the notion of systematic persuasion through his book Influence. In it, he talks about the experiment of Ellen Langer.
She asked a research assistant to try and cut in line. When the research assistant tried to cut in line with no reason, 64% of them agreed.
The researcher went back and asked another group of people, but gave a reason. This time, 94% of people agreed. It was interesting to note that the reason was trivial.
The act of providing a reason is more important than the reason itself. It was important that you gave a reason at all.
Show Prices at the right time.
The time you show the price of the product influences how people evaluate the purchase decision.
When they’re shown price first, the purchase is evaluated on monetary value.
When buyers are shown prices at the end of an interaction, the purchase is considered based on desirability or attractiveness. There’s a caveat.
When a product is in everyday use (or a bargain product) and people have a lot of experience with it like ketchup, gasoline, or toilet paper, it can be detrimental to withhold the price.
In a case like that, show the price first because people are already familiar with it and what it should cost.
For goods that are premium or less common, you receive the benefits from showing the price last.
The application is simple, show pricing last for premium products. Show pricing first with common or bargain products.
Simplify your prices
A paper published in The Journal of Consumer Psychology found that the way numbers sound can have a profound effect on the perception of magnitude.
Numbers are processed visually, verbally, and analog (relative to one another). The following three numbers are processed differently.
$2499
$2,499
$2,499.00
The last number is perceived to be a much larger amount than the first number.
This is because of the way we encode the visual stimuli to its verbal equivalent. The first number is twenty-four ninety-nine while the last number is two thousand four hundred and ninety-nine.
It’s strange but it’s the way our mind works.
How to use it.
Simplify your prices. When you’re writing your prices, remove commas and cents whenever possible to make the number simpler.
It’ll be processed more fluently in the mind and be perceived as smaller.
Conclusion
There are many pricing strategies, methods, and tactics to help you reach your goals.
Before you settle on any pricing strategy, it’s important to know:
Your competitors
The costs of production
Your monetary goals
The value you deliver to customers
What the competition is doing.
After you have that information, you’re free to select the pricing strategy and methods that work best for you.
Always take into consideration your brand and how much of the market you want to control.
Premium pricing won’t work for a bargain brand and penetration pricing won’t work for a luxury brand.
When you’ve determined your core pricing strategy, dive deep into the psychology of pricing to make the most of it.
Let me know how you’re using the different pricing strategies in the comments.
