The Art and Science of Pricing

Nov 15, 2024 | Listen

Adam Wallace and Kathy Svetina discuss pricing strategies to scale small businesses on the Help, My Business is Growing podcast.

Setting prices for your products or services might seem simple—just cover your costs and add some profit. Or you could rely on good old market forces, factoring in supply and demand. But pricing goes deeper, involving a keen understanding of your customers’ psychology and buying decisions. If your pricing doesn’t match the perceived value of your products, it can create lasting issues that are difficult to recover from.

Poor pricing can negatively impact how people see your business and, more importantly, your bottom line. It can lead to lost customers, missed sales opportunities, and even long-term damage to your brand.  That’s why pricing strategy matters. You need to plan carefully, adapt as the market changes, and find smart pricing tools and methods so your business can grow sustainably.

So, how do you set the right prices to achieve your goals? 

What are some of the mistakes you should avoid while fixing your pricing? 

And how do you guarantee that your pricing strategy will keep your business thriving?

Adam Wallace: Strategic Pricing Expert

In this episode, Adam Wallace and I talk about the power of pricing and how you can use it to scale your business. We cover real-world examples of effective pricing, the competitive advantage of being a small business, and share actionable tips for pricing your products or services for growth.



Timestamps for this week’s episode

03:13 Understanding the psychological and emotional side of pricing

09:30 How pricing influences perceived value and customer satisfaction

10:58 Why copying competitors’ pricing strategies can hurt your business

38:28 Optimizing your pricing to drive business growth

46:01 Actionable steps to take to improve your pricing strategy this week


Understanding the psychological and emotional side of pricing

How you price your products and services is probably one of the most complex and challenging decisions you need to make in your business. And while there is a supply and demand aspect to pricing, it’s not the only factor to consider.

What many people don’t realize is that pricing has an entire psychological and emotional side to it. Every purchase decision is emotional, driven by subconscious factors within the limbic system, which influences how buyers perceive value.

To get ahead, think about and factor in these emotional drivers when setting prices. This will help your brand connect more effectively with customers and potentially create stronger demand, even at higher price points.

We just have to recognize that your buyer, at any time they buy, whether it's a commodity or not, it's an emotional decision.

How pricing influences perceived value and customer satisfaction

Pricing strongly influences how customers view the value of a product and how satisfied they are with it. For example, when Peloton first launched, they set their prices low to compete…and struggled to sell. Once they raised their prices, sales took off without them making any changes to the product.  This shows the price-quality heuristic, where people associate higher prices with better quality.

But there’s a risk: when you raise prices, customers expect more. If the product doesn’t live up to those expectations, it can hurt the brand. While higher prices can boost sales and make a product seem more premium, it’s important that the quality matches the price. If not, it can lead to lost trust and dissatisfaction.

Why copying competitors’ pricing strategies can hurt your business

Copying your competitors’ pricing can hurt your business because their prices are based on factors that might not apply to you. They could be using a different business strategy, relying on investor money, or focusing on long-term growth instead of immediate profits. Simply following their prices might not cover your costs or reflect the value you provide to your customers. Instead, you need to think about your own costs, the value you offer, and where your customers are in their buying process. Without this, copying prices can lead to mistakes and lost opportunities.

“The precedent you set on that 1st sale translates into the type of customer you have long term.” – Adam Wallace

Optimizing pricing to drive business growth

Optimizing pricing doesn’t automatically mean raising your prices. What’s more important is to first lock in on what customers value in your product or service. By adjusting prices to match that value, you can boost profits without extra effort. 

For example, if customers see more value in your product, a price increase of 10-20% might lead to higher earnings without needing to increase sales volume. On the flip side, if certain features aren’t as valuable to customers, selectively lowering prices could attract more business—so long as you’re still hitting a profitable margin. This approach also helps you focus on higher-profit customers, making your business more efficient. And finally, building systems that support this strategy will help you stay on track for steady growth. 

It's natural to look toward admirable companies and emulate them when you're much smaller... not recognizing they are actually giving up on the competitive advantage of actually being small versus maximizing that.

 Actionable steps to take to improve your pricing strategy

  • Talk to a few key customers about raising your prices. Choose customers you have a good relationship with, and get their honest feedback. More often than not, you’ll find that many already understand that you’ve been offering great value and will be open to paying more.

    • Beta-test the new pricing with a small, targeted group of customers. Try it with new clients or those who aren’t your core revenue drivers. This way, you can check for their reactions and make adjustments before rolling out all the changes on a large scale. 

      • Make sure your entire team is on the same page with the price adjustments. They should understand the trade-offs, including the possibility of losing some customers. Clear communication will help make the transition smoother for everyone.

        Summary

        • Pricing decisions are driven by human emotions, not just supply and demand.

        • Higher prices can increase perceived quality, but only if the product meets customer expectations.

        • Copying competitor pricing without considering your unique business model can hurt your profits.

        • Optimizing prices based on customer value can boost profits without needing to double sales.

        • Start by testing price increases with key customers and make sure your team understands the potential trade offs involved. 

        Transcript

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        About guest – Adam Wallace

        Price & Earnings Optimization Expert

        Adam Wallace who has spent years unlocking pricing power for products and services. After more than a decade as a corporate fixer, joining Fortune 100 leadership teams to capture additional value on multibillion-dollar ventures, he now serves as an interim executive and board member for private companies. He’s also the author of (Re)Value: Raise Your Prices and Build Your Legacy (Business Expert Press; July 22, 2024). 

        Website: www.AdamWallace.com

        LinkedIn: https://www.linkedin.com/in/propertyofwallace/  

        Email: Adam@AdamWallace.com

        Author: 

        (Re)Value: Raise Your Prices and Build Your Legacy (Business Expert Press; July 22, 2024)


        About host – Kathy Svetina

        Kathy Svetina is a Fractional CFO for growing small businesses with $10M+ in annual revenue.

        Clients hire her when they’re unsure about what’s going on in their finances, are stressed out by making financial decisions, or need to structure their finances to keep up with their growth.

        She solves their nagging money mysteries and builds a financial structure with a tailored financial strategy. That way they can grow in a financially healthy and sustainable way.

        Kathy is based in Chicago, IL and works with clients all over the US.

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