A few years ago, I held this training called YTY or You, They, You. The principal concept revolves around demand-based pricing methods. This means playing on consumer demand to identify the best price point to sell your product or service.
Let me explain how you can apply dynamic pricing to your business to yield outstanding results.
The main idea is to follow where the market goes. So, when the market heads in one direction, you want to go in the exact opposite direction, and the market will eventually follow you.
How does that happen? Well, markets have a constant ebb and flow of increasing and decreasing demand and pricing. They always change but then they come back around, no matter what the product or service is. It’s like a pendulum effect.
So, you have to be strategic when deciding your prices. If you notice the price of a product in your market trending higher, you may want to set a lower price. This tactic applies to existing products or new ones you’re developing. For example, if the price trend is over a hundred dollars, price yours at around half of that.
Because most products in the market are above a hundred dollars, your target buyers will be attracted to a competitively priced product that’s about half the price. They will see your product as more appealing than the competition price-wise.
Exposure to different prices allows shoppers to create internal reference prices. When they spot a new price tag, they inevitably make comparisons that influence their purchasing decision.
This pricing strategy helps raise brand awareness by capturing consumer attention. The intention is to set prices low to draw buyers to your product or service. Your customers will take a chance on your product. And if you genuinely offer something of value, you can retain your customers even if you raise your prices eventually.
When people start buying your lower-priced product, this
organically changes the market. The pendulum swings the opposite way. Businesses start to see their sales slowing down, and they realize other products are selling at lower prices. They adjust their prices accordingly to retain sales.
Once the bulk of the market switches to lower prices, that’s the time you make a switch. You do a 180-degree turn and price your products at $100. Why? If you’re making sales at your currently low price and now everyone else decides to match you, why should you change? Well, it’s relevant to consumer perception.
At this point, most of your competitors already offer lower prices. What you want to do is take your prices higher, which means you’re now one of the few selling at over $100. This creates the impression that the few, higher-priced items are better than the cheaper ones.
Consumers will wonder: Why are so many similar products so much cheaper while a few are expensive? They will have the perception that premium price tags equate to superior quality. They will put more value on the select, higher-priced products.
Consumer perception plays a critical role in sales. If buyers perceive a high price as a positive indication of quality, they’re more likely to purchase the product.
Let’s say you have two cars. Both are gray. One car has leather seats and all the nice features you want. Its price is $30,000. The second car also has leather seats and the same attractive features as the first one. Its price is $75,000.
Now, which one will you choose? Many will say the more expensive car is the better option. Why? Simply because people have been conditioned to believe that the higher the price, the better the quality.
But when most cars in the market are priced at $70,000, consumers will think that the higher-priced options are simply overpriced. Conversely, when almost all products are at similar, lower prices and a few have a higher price, shoppers will perceive those few to have better quality or value.
Pricing your products wisely is one of the secrets to skyrocketing your revenues. Don’t just go with the flow and price your product the same way everyone does.
When everybody sticks to a higher price point, go the opposite way and enter the market at a lower price. Buyers will see your price tag as saying “Hey, I can give you the same product for less money!” Naturally, people will gravitate toward your product.
When the market switches and everyone drops to a lower price point, you apply the same reverse pricing strategy and offer your product at a premium price.
Remember: When the market goes high, you go low and vice versa. You’ll be one step ahead of the competition and ahead of the pendulum swing.
While there’s no single, surefire approach to sell your product at the perfect price, taking fluctuating market demand into consideration is an excellent way to determine the right price points that attract substantial sales.