Raising Price as a Viable Marketing Strategy

I get this question a lot from people that I mentor and other business clients. I answered this particular question on LinkedIn that I think deserves blog coverage here.

The question:

"Raising your prices - a viable marketing strategy?"

In traditional marketing we worked with the 4 P's. Price, Product, Place and Promotion. The only P creating income and margin is Price, the rest create costs. Still, product and service providers generally compete on prices and suffer lower margins. You do it differently and raise your prices this year with 10%. At the same time you compensate with value-added services. What will be the result of this strategy?

Here was my answer:

Errol, You ask an excellent question. Often entrepreneurs enter markets and compete on price to obtain share. Pricing is the first communication to... see more customers of the value they should expect from your product. If you price at or just below your competitor, you may get share, but you will always be expected to price at or near your competitor. That way, the competition indirectly dictates your pricing strategy.

Price your products and services based on where you should be positioned versus your competition. If you are superior, then price at a premium. Your brand strategy should support a premium position (i.e. some value added services), but you should not be afraid to price at a premium if your product is better. Gear your organization to appealing to a customer who will value your premium product. Then, you will be defining your own pricing and branding strategy, and your competitors will have to follow you.

I have implemented this strategy several times in the past with excellent results. On the product side, Prodigen (TM), a nutritional supplement, I priced 80% higher than any competitive products because of the benefit our customers will receive. Windhawk Nutritionals uses better ingredients, better process, and this product has a dual benefit. The product is flying off the shelves--and my lower priced competitors are scrambling to keep pace.

On the service side, at The Windhawk Center we used to price our memberships at $59/month to compete with other fitness centers. I realized however, that we have such specialized services that gyms didn't offer, that we were leaving money on the table. Now our memberships are tiered with the lowest price at $179/month and the highest at $599/month. Our business has soared since the pricing changes with our client list growing faster than ever. Clients are paying for the perceived benefit, outstanding customer service, and the overall experience.

To drive the point further home, our location has a much lower demographic profile than our customer and they travel 10 miles or more to come to The Windhawk Center. We realized that our core customers were affluent and were willing to travel a great distance for our specialized services. Pricing to reflect the level of our service was the key change to our strategy and it made a monumental shift in our business.

The overall message from this response is to understand your pricing sensitivity based on the product you provide. Consistency is the key element to branding and perceived value. Ensure that the entire organization is ready to deliver on that brand promise.