Tailoring Your Pricing Strategy for Business Success & Maximising Your Market Penetration

Major Points of the Article

• Your Pricing Strategy will greatly affect the demand for your product and in turn the market penetration.

• There are many tiers to pricing within an industry and based on where you want to be will reflect on how your brand needs to feel, act, and be like.

• You need to consider your own brand in relation to the pricing strategy as making a premium brand doesn't necessarily mean you will make more profits.

All businesses go through the same 6 stages of growth: existence, survival, early success, rapid growth, maturity, and decline/re-launch. No matter what stage your business is currently at, the price of your product or service will greatly affect your market penetration and the growth or lack of it.

So how do you tailor the right pricing strategy?

You firstly need to establish what is the pricing norm. By evaluating your competitor's pricing you can start to establish the average pricing your potential customers are willing to accept. AND, if you are a new type of business, say a startup, and you feel there are no direct competitors, then you need to look harder or seek out the feedback from your potential customers to understand what they on average are willing to pay.

Once you have established the average pricing we can start to break down what tier you would like your product or service to be positioned in.

Product Pricing and Positioning

The positioning of your product can greatly affect the market penetration that it can achieve. In this example, we will be discussing a product, but you can just as easily apply the same principles to a service. So let's take for example a moisturiser, it is a well-known industry and you yourself probably use some on a daily basis or some other personal care product.

If we look at the brand Josephina Skin Essentials, they have a moisturiser that is available for $35.

It's nice, it's pretty, and it works. However, where are they positioned in relation to their competitors say L'Oreal, or Clinique? At this moment in time, research has found that the average price of a moisturiser is around $20, but if you compare them to their competitors you can start to see where they are situated.

They are of course above the market average, however, if you bring in more and more competitors a pattern starts to emerge and you can start to see the tiers.

Straight away you can see 5 tiers of positioning and when you look at the brand associated with each product it becomes clear how the tiers can be labelled.

Product Positioning Tiers and What It Means

Tier 1 - Low end (40% or less of the average price)

Reviewing the brands within this tier, these moisturiser products had very simple branding and contained ingredients that you would only see in a base moisturiser. Ingredients such as water, oil, and emulsifier. It is nothing special.

Tier 2 - Budget (60% to 40% of the average price)

These brands were somewhat elevated by colourful packaging creating a fun feel to their product. The positioning of fun created the product differentiation that attracted their customers so that if you saw a budget product and a low-end product together, you would favour the budget product.

Tier 3 - Mid Tier (125% to 60% of the average price)

These products typically contained active trending ingredients that provided additional benefits such as anti-aging, rejuvenating, reduction in fine lines, or were organic or vegan based. These moisturisers were elevated even more by their packaging. If you saw this moisturiser you would be keen to pay the extra amount for the additional benefits.

Tier 4 - Upper Tier (200% to 125% of the average price)

Once again the brand was elevated more, by even more sophisticated active ingredients, and more elegant packaging. You also wouldn't find these products in the average supermarket or corner store.

Tier 5 - Premium (200% or more of the average price)

These products had elevated ingredients (some trademarked/innovated by the brand) and had elegant packaging once again. The exclusivity of the ingredients or limited worldwide supply allowed the brand to sell its products at a premium. They were often compared to cosmetic surgery alternatives and had limited exclusive distribution.

Essentially what you can learn from the tiers is that the pricing strategy must be reflected across the entire brand - from the packaging, the wording, the promotion, the price, what it is made of, and its exclusivity. You can even see that the distribution, where it is seen, also affects the positioning.

Reflecting on your price, allows you to know where your product is positioned and how it should feel, act, and be like.

Matching your pricing strategy to the brand and product will allow you to reach maximum market penetration. BUT, just remember that not everyone wants a premium product and very few would like a low-end moisturiser. What this means is you could reach higher market penetration and higher profits with a budget product rather than a premium product. It all depends on your profit margin. In fact, most consumers of moisturisers enjoy a budget to lower mid-tier product (as shown below).

This may not be same for your industry but you should double-check to see if your business is reaching its maximum market penetration potential and that you are positioned correctly. You could be missing out on millions of unrealised profits, especially if you are in trouble and need turnaround help.

In fact, you should consider Paradelta Strategy, a business strategy and brand equity building company that specialises in this area to review and improve your business. Over the years, we have helped businesses across Australia to grow and expand, nationally and internationally and grow significantly in profits. To get assistance with your business, simply email us at hello@paradeltastrategy.com.au or schedule a no-obligation discovery call here.