In this series of articles, we look at the various sections you need to include in a marketing plan. In Part 3, we looked at the ‘unique selling point‘, in part 4, we look at ‘pricing & positioning’. Our aim with this series is to provide you with a comprehensive guide to help you create a fantastic marketing plan that will help you understand exactly how to take your product forward, as well as providing you with a document that will strengthen your position with potential investors.
A good marketing strategy acts as a roadmap to success. It will help you:
- Understand which steps to take to carry your product forward
- Understand how to attract and find customers
- Find and secure investment opportunities for your product
Our Ultimate Marketing Plan Template aims to give you the tools to succeed with your product and make it profitable.
Pricing & Positioning
This part of your marketing plan looks at where in the market you want to position your product and, given its market position, how much you should charge your customers.
Market positioning refers to how you want your customers to perceive your product relative to similar brands and products. Pricing & positioning need to align; in other words, you must ensure that you price your product correctly for its position in the market.
For example, if you are selling a luxury product, you position the product at the high-end of the market and set a high price. Conversely, if you want to offer value for money, you choose a pricing structure that reflects a lower quality product.
If there is a marked difference between the price of the product and its position in the market, it will be less successful than if you align price and position. For example, if you are selling a luxury product, but you offer budget prices, people are likely to question the quality of the product and will be less inclined to see the product as a luxury item.
Pricing & Positioning: Getting It Right
To get it right with pricing & positioning, simply follow the steps outlined below. As with every section in our ‘Ultimate Marketing Plan’ template, you will need to spend a significant amount of time and effort on research. The more thorough you are with your research, the better your marketing strategy will be and the easier you will find it to reach your goals.
Step 1: Set Out Your Business Goals
Your business goals – especially your business’s financial goals – should be a driving force in setting your pricing & positioning strategy. The following will help you to work out how to set workable business goals:
- Profitability – how much money do you want to make on your product once you have paid your overheads and cost of goods sold (cogs)? For example, if you want a profit margin of 10%, you need to set your price 10% above your overheads and cogs with a little wriggle room for mistakes, so 12% is a fair option. When calculating the percentage of overheads each unit will pay (known as ‘contribution’), think about the total cost of your overheads compared with your total expected sales, and divide the cost of your overheads by the number of units sold. The figure you are left with is the part of the price that contributes to overheads. Next, work out how much your product costs to manufacture. Finally, add the 12% profit margin. This is the price you should charge for your product. For example, if your overheads are £10K a month, each product costs £1 to make, you want to add a 12% profit margin, you need to sell 10,000 units at £2.24 to reach your goal. Is this viable?
- Market penetration – where in the market do you need to position your product to make a 12% profit on your product? In other words, in which market segment will people pay the price you have chosen to charge for your product?
- Cash flow – how soon after selling the product do you need to receive payment to manage cash flow concerns? B2B often has payment terms of 60 days. Do you have the funds to manage cash flow until then?
- Competition – is your product competitively priced and priced to the right audience?
- Segmentation – are there new market segments that you can sell your product to?
- Conversion – how many prospects do you need to convert to make a profit? Where will you find them? Will they buy from you as per your pricing & positioning?
Step 2: Analyse Market Pricing
You must set your prices within the context of the existing market. To do this, you need to carry out a price analysis on the market.
If your pricing structure is wildly misaligned with your competitors, you either have to have a revolutionary product (unlikely) or you need to reconsider your pricing structure. If your market is saturated with similar products, you will need to set your pricing in line with your competitors and either reduce your overheads as much as possible or increase the number of units you sell. Usually, you need to strike a balance between increasing sales and reducing your overheads.
A good rule of thumb when analysing the market is that if your product is similar to your competitors, you price it similarly, but if your product has value none of your competitors offer, you can increase the price, providing the value you add is something the market wants.
Step 3: Know Your Target Audience
If you have worked on the previous parts of our ‘Ultimate Marketing Plan’ template, you will already have a good understanding of your target audience. You can use that research here to establish whether your pricing matches your target audience profile. Will your chosen demographic pay your prices?
Step 4: Understand Your Competitors
Again, you will already have some understanding of your competitors’ position in the market. You must identify your primary competitors and evaluate their pricing structure. Choose at least 3 competitors to analyse. How much do they charge for each unit? Do they offer volume discounts? Does your product offer value there’s doesn’t, and so can you add a value profit to your product?
It is also worth doing some analysis on less direct customers so that you have a good idea of the market pricing structure in general.
Step 4: Choose Several Pricing Strategies To Test
Now that you have a good idea of the market and your position within it (i.e. if you’re high end or low end, luxury or every day, who you will sell to, who your competitors are), you can now choose several pricing strategies to get started. Look at each strategy from the link we’ve just provided and select up to five that you think are viable in the initial stages of your product launch.
For example, one that most brands should use initially is “pricing for market penetration”. Here, you artificially drop your prices to attract people to your product. As your product becomes popular, you then raise prices to match your 12% profit margin.
As you progress with your sales and marketing, spend time gathering data to establish which strategies are working for you and which aren’t. Modify or drop the ones that aren’t working, and stick with the ones that work.
When choosing your pricing & positioning strategy, you need to keep your competitors, target audience, overheads, and cogs in mind. You need to understand what value your product has in relation to similar products on the market and if this added value is enough to set a premium on the price.
To understand this, you need to know your customers and whether they’re willing to pay the premium or whether you need to stick with competitive pricing. To understand what constitutes competitive pricing, you need to know how your competitors are pricing their products.
You also need to know if the pricing structure you choose is suitable for your brand. You do this by looking at your overheads, cogs, and how many units you should be able to sell. Finally, you implement pricing strategies on a trial and error basis, testing and measuring to see how well they fair, and adjusting your strategy as you move forward.
Tip: pricing & positioning can feel daunting in the initial stages. It’s important to get a workable plan but this does not mean that you can forecast every eventuality, or that you can discover all of the information needed to create a perfect plan. For example, you won’t be able to work out your competitors’ overheads or cogs. It is a matter of making an educated guess based on your research.
Remember that there are many unknowns with marketing but that your research and effort will help you mitigate these unknowns. No marketing plan will ever be perfect, but an educated guess is far superior to going in blind. The more effort you put in, the greater your rewards will be.