Why You Are Finding It Impossible To Price Your Product/ Service
Do you feel like you have been going in circles about potential selling prices ? Somedays you lean towards a higher price because you genuinely believe in the quality of what you are offering. But then other days you lean towards a lower price to ensure that you capture as much of the market as possible. Or perhaps you feel like when it comes to pricing, you really just have no idea which way to go. If any of this sounds familiar then the reason for your confusion is loud and clear: you haven't properly defined your target market, and even more critical, your target customer.
Defining Your Target Customer
Defining your target customer is a step critical when it comes to pricing, and its often overlooked or not conducted at detailed enough level, which makes pricing seem completely impossible, and random. Without it, you are making decisions on behalf of too many people, which is why you are going in circles. The easiest way to illustrate the importance of this is through an example. Lets say I started a t-shirt line, and after conducting a detailed target market analysis I determined that my t-shirts are best suited for young professional males who live on the west coast, working in tech-based industries, value quality, are stylistically risk-adverse, but want to come-off professional and put together, yet still casual. This may seem extremely specific, but it's necessary. From this point I can estimate a good range of stores this customer shops at, and the average price they spend on clothes. Now because I know my customer profile so well I know what needs their current t-shirt providers (my future competition) are not providing. I can add these features to my line and justify a slightly higher price point. I can't stress enough how important it is to know who your customer is; and this extends far beyond just pricing decisions, its critical for marketing initiatives, selling locations, the list goes on and on.
What if My Product Can Be Used By several Different Customer Types?
A common concern is that your product or service could be used by many different types of people, and by focusing too intensely on one customer type you will miss out on the others. In order to maximize your selling potential you have to focus on a target market- the market with the highest profit potential. Other customer types are considered your secondary and tertiary markets, which aren't to be completely ignored, but in your early sales stages and with limited resources its counterproductive to try and target multiple groups. Let the sales from secondary and tertiary markets happen organically, for now.
The best designers and inventors don't design and invent for everybody, there is a chance that everybody loves it, but they don't design for the world, they have a specific customer profile in mind. Think of your target customer as the set of guidelines you make all decisions by, when it comes to product features, where to sell, and whats important. How do you know you are focusing on the right customer? Through a detailed target market analysis (which factors in competition, customer needs, product offering) you select the market with highest profit potential. Stay tuned for next weeks post, we will walk through a target market analysis in detail, together!
Note: The price always has to cover the cost to make each unit sold. Stay tuned for future posts where we will walk through formulas to help you arrive at the ideal price.