Which Is Your Strategic Pricing Objective?
This guest blog post is by Dr. Michael Tatonetti.
When potential clients come to us and ask how they should price a specific product or service, one of the first questions that we have to return is “What is your strategic pricing objective?”
You see, there are a few different things that pricing can enable your organization to do. We've already established in almost every piece of content that we make at Pricing for Associations that pricing is not about greed, but financial sustainability.
Within that, each individual product or service that your organization provides to members or to sponsors is advancing a specific objective, whether you realize it or not.
There are typically four strategic pricing objectives that you can pick from. And each product within your portfolio can have a different objective.
Today we're going to go over the four primary pricing objectives so that you can filter and consider where each product in your portfolio sets.
1. The first objective is for ‘profitability’.
This is typically where we are landing when we're working on a Pricing and Value project with the client. The client is looking to maximize their profitability on a specific product or service so that their margins are healthier, and they can therefore use the additional bottom line profits for their reserves or for new programming that can advance the mission forward.
The key is to use value-based pricing, value-based marketing, and value-based selling so that you are capturing and delivering the right value to the audience, and then capturing your piece of the pie through pricing to maximize your profitability.
2. The second strategic pricing objective would be ‘volume’.
Volume is about reaching as many people as possible. An example would be to make something affordable, in a way that you could be charging more because of value-based pricing but you choose not to, so that more people have access to the product or service.
This is typically considered a loss leader, although you do not always have to be taking a loss on the price versus your cost of doing business. You could absolutely be profitable, just not at peak profitability, because your goal is not profit but about reaching as many people as possible and accessibility financially.
3. The third strategic pricing objective is to acquire new customers.
Acquiring new customers can mean that it's priced competitively, or it could mean that it's priced for value.
But the bottom line goal is that the value is communicated in such a way that it is a no-brainer for cold audiences to convert.
This is an entirely different strategy than Pricing and Value for your warm audiences because they are already familiar with your organization. Whether they are a returning client for a conference, or whether they would be a new customer for another product, let's say that they're a member but they've never paid to attend a conference before, that is one strategy in pricing versus pricing for a brand new customer who is new to your organization.
This pricing is also typically done on one or two specific products, such as membership and digital education so that there is a natural entry point where people can experience what your organization has to offer.
4. The fourth strategic pricing objective is favorable price perception.
This can easily tie into the rest. But I believe that it's what most associations think of and that's why I am isolating it as a fourth objective.
Most associations are afraid to discuss pricing, value, and profitability because they are afraid that their members will have an unfavorable perception of them if they are focused on profits or volume or acquiring new customers.
Outside of favorable price perception being an objective, because of insecurity, favorable price perception can also be a valid objective if your organization has been considered as price gouging or not delivering on the value promised, and therefore you need to do a strong reset and a public relations initiative that backs up that you are only taking prices based on the value that you provide.
Hopefully now you can consider that your different products might have different functions against these four strategic pricing objectives. And it's important to categorize your products within these objectives to determine which ones are there for new customers, which ones are there for building brand loyalty at acquiring higher profitability because of the value that you provide, and which are there to be favorable or reach the most amount of people possible.