Business consultant Jeff Nock, from Iowa City, Iowa, sets out five of the most common pricing strategies and reveals his favorite.
Having spoken at length about internal operational efficiencies, leadership development, branding, culture, partnership development, channel strategies, and more in a series of recently published pieces of writing, Jeff Nock, a successful business consultant from Iowa City, Iowa, now turns his attention to pricing strategy.
“Pricing involves much more than just calculating costs and adding a simple mark-up,” suggests Nock, a successful business consultant based in Iowa City, Iowa.
What a customer is willing to pay, he says, is tied to value – not what a product or service costs. “It’s about value proposition,” says Nock, “which is why employing a proven pricing strategy tied to this model is vital if a product or service is to both sell and make a profit.”
Jeff Nock calls this particular model ‘value-based’ pricing. “Other methods of pricing are proven, of course, such as cost-plus or competitive pricing, and they do work, but they typically fail to consider value,” he suggests.
Proven, but nonoptimal pricing strategies, according to Nock, include cost-plus pricing, competitive pricing, price skimming, and penetration pricing. While cost-plus pricing involves calculating costs and adding mark-ups and competitive pricing simply means matching or undercutting the competition, price skimming and penetration pricing both, the expert says, essentially involve lowering and raising prices as markets evolve and as supply and demand dictates.
“For me, however, it’s value-based pricing,” he adds, “where a price is set based on what a customer or client likely believes is the true value of what you’re selling, and in line with what they’re expecting or willing to pay, which should be the obvious choice.”
To arrive at an appropriate value-based price in the most straightforward manner, business consultant Jeff Nock has a couple of simple tips. “First, find a comparable product already for sale and determine its cost and selling price,” he says, “then highlight any and all differentiating points between this product and your own.”
“Next,” Nock explains, “put a value on each of these points, and add to, or subtract from, the comparable product’s selling price accordingly.”
Assuming that the resultant price is higher than the cost of the product in question, this, Nock says, represents the simplest manner of arriving at a value-based price. “Aim to add positive differentiating points to achieve a higher selling price,” reveals the expert, “then clearly demonstrate these differences to customers.”
“As long as your price represents a genuine value proposition,” adds Nock, wrapping up, “this simple strategy should provide a strong enough basis to establish at least a preliminary price point according to proven value-based pricing methods.”