“When your price becomes your only source of difference, you’re no longer marketing; you’re liquidating your business.” — Quote seen on GKIC Facebook Group
How did a coffee and smoothie shop owner go from $500K in debt to a 7-figure profitable business? Not by selling $5 smoothies one at a time, that’s for sure!
A smoothie is just a smoothie, right? It’s a commodity, and people have a set amount in their head they’re willing to pay for it, and usually it’s based on finding the lowest priced option. If what you’re offering is viewed as a commodity, then you need a new pricing strategy that allows you to raise prices and ultimately put more money in your pocket.
Great – so you know you need to raise your prices. How do you do that? Here are three pricing strategies for the business owner on Main Street and beyond:
Experience-Based Pricing
Is Amazon or another online retailer killing your business? Then stop being a commodity – be an experience! It literally takes price out of the equation. To see how I do this in my coffee and smoothie business, watch this video. Warning: the video is a bit “rad,” but that’s intentional.
Your brick and mortar location has a HUGE advantage over an online retailer. You can influence visiting shoppers by offering an engaging, educational and fun in-store experience. Something that cannot be duplicated digitally. When done correctly, it will lead to more sales and profitability.
Market District is a supermarket that is entirely dedicated to the in-store experience. The stores host events that allow customers to learn and explore the world of food, ranging from wine and beer tastings to cooking classes with celebrity chefs. Couples can drop off their kids in the children’s center and escape for a date night complete with live music and food tastings. The stores even offer wellness classes to help customers shop healthier, plus movie nights to entertain the kids. Market District has made grocery shopping an entertaining and educational event rather than a mundane chore to be completed. The numerous offerings attract shoppers of all ages, which increases sales for the company and satisfaction for the customer.
Scarcity-Based Pricing
Interested in boosting customer desire to sell more of what you offer? Make it scarce. A study was done to understand how people would value cookies in two identical glass jars. One jar held ten cookies while the other contained just two stragglers. Which cookies would people value more?
Though the cookies and jars were identical, participants valued the ones in the near-empty jar more highly. Scarcity had affected their perception of value. If there are less of an item, the thinking is that it might be because other people know something you don’t. Can the same principles of scarcity make your products more desirable? You bet your sweet cookies they can!
Offer a limited-time only special. Offer fast-action bonuses for the first X customers. Offer a one-of-a-kind special that can’t be found anywhere else.
Conclusion: We are always drawn to things that are exclusive and hard to come by.
Scarcity works so effectively because we’ve evolved to assume that things that are difficult to obtain are usually better than those that are easily available. We link availability to quality.
Perceived-Value Pricing
“Beauty is in the eye of the beholder.” So is value. Prices don’t exist in a vacuum. A price is supported by the value the customer perceives your product or service to be.
My son plays video games. One of his favorites is Counter Strike Global Offensive. You can buy – and sell – knives in the game. You can buy – and sell – skins for weapons. These aren’t “real” assets – they’re virtual. They don’t improve the ability to play the game. They’re simply cosmetic. The only value it has is intrinsic – what someone perceives it to be – what they’re willing to pay for it.
This is real money changing hand. I asked my son why he spends so much money on buying a “virtual item.” He said because “it makes him look good when he’s playing.” It has a high perceived value to him, so he’s willing to pay more for it. He also sells these items. There’s a whole marketplace where these buyers and sellers connect and trade. All based on perceived value pricing.
Here are three ways to implement perceived value pricing:
- You can change the pricing and leave the value alone.
- You can change the value and leave the pricing alone.
- You can change both value and pricing or leave both alone.
Any one of these changes can be tailored to have the same impact on your bottom line, at least on an individual unit basis, but they may have vastly different effects as perceived by customers.
An example of changing the price without changing the value is when a grocery store holds a sale on a popular consumer item. A case of Coca-Cola is a well-recognized commodity; shoppers have a firm idea of what a dozen cans of Coke are worth. If a retailer charges less than that amount, shoppers will be attracted. Charge more and shoppers will be repelled, all other things being equal. This is “commodity-based pricing” and not a strategy I recommend for any small business owner.
Many businesses change value without changing price. For instance, cans of ground coffee have slowly shrunk from 1 pound to around 13 ounces. This has allowed coffee makers to maintain the perception of holding prices steady or even reducing them, while they are in reality increasing the per-ounce charge for ground coffee.
In my coffee and smoothie catering business, I kept my prices the same, but served beverages in a smaller cup. No one noticed or complained because they didn’t know what size it “should” be. Ultimately, it put more dollars in my pocket without having to raise prices.
You can change both value and price simultaneously. For instance, a grocer could raise prices on Cokes but include a free insulated can holder with every purchase of two or more cases. People love “freemiums” and will buy something just to get the free item. I’ve done this successfully in my coffee and smoothie business by offering something as simple as “free leis” with any smoothie bar package that includes an alcohol upgrade. I also do it by offering different levels of packages they can choose from. Think good, better, best. A customer can choose which package they want, and will pay more for a higher-level package, but will also get more value from that package, as well, because it includes exactly what they want.
Now that you’ve determined your pricing strategy, you need to decide how much you’re going to raise prices. There are two ways to do this:
Just do it. Raise your prices – significantly – all at once.
There are two thoughts on this: announce it or don’t announce it. For something like a smoothie, I may need to raise my prices because the price of a key ingredient or cost component increases. Make a big announcement about it? Probably not necessary. Most people probably won’t even notice.
In general, though, if you can announce the price increase, I encourage you to. It’s an opportunity to connect with customers and tell your story so that it’s positioned to support them, not alienate them.
How you tell the story is important. You don’t want to say, “We’re increasing prices because we need to be more profitable.” It needs to be positioned so the customer feels they’re going to get more support and value. You can do this by focusing on the positive. Also, don’t forget to thank your customers for their continuing business. It cements the positive tone and a future relationship with your customers.
2. Increase prices in stages.
The theory is that customers will be accustomed to higher prices over time and be willing to tolerate them as they become more loyal. A series of smaller hikes may not even be noticed by customers who would be seriously put off by a single large one.
If you have more than one product or service, consider raising prices on some items while leaving the others the same, or even lowering them. Automobile dealers cut prices on cars as low as possible and attempt to make much of their profit on accessories like fancy paint jobs, which customers are less price-sensitive to.
In my coffee and smoothie business, I ran a daily deal to get customers for my catering services. It worked and got my phone ringing, but daily deal marketing is really a discounting price strategy. It’s not going to put more dollars in your pocket – immediately – unless you structure the deal correctly. I used extremely profitable add-ons that didn’t cost me much, and everyone wanted at least one upgrade. Now clients were attracted by the catering package discounts, and I made more profit because 1) I had no out-of-pocket marketing costs and 2) the upgrades went straight to my bottom line.
What have you done to raise prices – and not lose your customers? I’d love to hear what’s working – share below!
