Pricing your products to fit your business

As owners of businesses we know that there are a variety of options in how we can price our products.

Boutiques for example might pick a high or value priced model. Some business models demand a discount strategy. For some businesses, including many in manufacturing, it might be a commodity based demand pricing model that they follow.

Herman Holtz in his book Priced to Sell: A complete guide to more Profitable Pricing says that the best price is “the highest one that fits your business’s strategy.”

In other words you should be pricing your products to fit the model of your business which we described in the earlier chapter on strategy. Ideally you want to differentiate your products and services enough from your competitors that you can justify different prices.

Hopefully the pricing model that you pick is going to be one that will allow you to be profitable.

The problem with most entrepreneurs and business managers is that they only consider one model of pricing. Often we don’t consider that we may be able to sell the same product or service to a different market. This new market might be geographical, socioeconomic, or use based. When this happens we can often adapt our pricing to reflect the market conditions in the new opportunity.

Sometimes we can use opportunity pricing to increase our margins during higher times of demand.

Of course any time we consider changes in pricing we need to think about the effect that this will have on our customers.

However, if we are shortsighted and fail to consider these different opportunities, our business will lose the potential for this revenue over the long run and rob us of profits.

Let’s delve into the different pricing models.

There are a number of pricing models that can lead to success in your business. I am going to list some of them here with a short description.

Try out some of them in your business. See how they work.

I can tell you that I have used many of these as every business needs a number of pricing strategies to optimize profits and ensure that your customers receive value.

Let’s look at some different models of pricing that can increase your profitability.

Anchor pricing: Jewelers know that the best way to sell a $5,000 dollar diamond ring is to put it beside a $15,000 dollar comparative model. In this manner your customers of the $5,000 variety believe that they are getting great value.

Auction type pricing: Now made popular by Ebay, this model works for some sellers in some markets. The key to this type of selling is to have your desired profit margin built into your minimum selling price

Branding pricing: This is a pricing model that works well for many successful business owners. Branding pricing essentially means that you have at least two and preferably three similar products in each category.

Bundle pricing: Encouraging your customers to buy more by putting products suited to your target market together in a package for sale can increase profit dollars.

Commodity pricing (sometimes called going rate pricing): Your focus to increase profitability is going to be to focus on differentiating your product or service offerings so that you can sell some additional products you can get more margin on or reduce your costs to increase your margins.

Discount pricing: In my eyes this is a rush to the bottom of the barrel and a quick way to go out of business.

Geographic pricing: The fact is that certain markets are willing to pay more for products.

High-low pricing: This is a pricing model that most people are familiar with. A business will have a regular high price but put products on sale to encourage customers to come in and buy more frequently

Premium pricing: You know if you walk into a boutique that you are probably going to be paying a higher price for a product than a similar product in a grocery store.

However you are also going to get better service and a higher quality product.

Sometimes the perception of quality is enough to demand premium pricing.

Price endings with nine: There is research to suggest that prices ending in nine will outsell prices ending in five by up to 24 per cent in some cases.

Seasonal pricing: Everyone knows that if you are selling flowers the price you can get for a bouquet of nice flowers is going to be different in November than it will be on Valentines or Mother’s Day.

Do you have products that are seasonal or in more demand at certain times? Can you figure out a way of getting more margin through your buying and pricing models?

Subscription pricing: Would you rather spend $1,000 per year or $83.33 per month?

Value pricing: Ikea is a prime example of this. They offer a fairly high quality product at a value to the consumers.

Remember every business is unique, pricing your products are important way to ensure that you are profitable. Without being profitable your business won’t be able to serve your customers, your community or your family for very much longer.

Universal adopts demand pricing for Harry Potter

LOS ANGELES – Universal Studios Hollywood is putting a price tag on the demand for fun.

The Los Angeles-area theme park is anticipating huge crowds for the April 7 opening of the Wizarding World of Harry Potter. If you want to be one of the first to experience it, be prepared to pay more than if you want to go, say, on a slow Tuesday in September.

So-called demand, or variable, pricing is nothing new to airlines and hotels. They have long charged higher prices on holidays and during popular seasons. Uber and Lyft charge higher rates during hours when the car-hailing services are in most demand.

Universal is the first major U.S. theme park to embrace demand pricing, though experts say consumers should expect more to follow.

Walt Disney Resorts put out feelers to annual pass holders last year, asking their opinion of a three-tiered pricing system aimed at charging more during Christmas, spring break and summer.

“It’s sort of a no-brainer,” said Martin Lewison, a theme park expert and business management professor at Farmingdale State College in New York. “As the parks see the bigger companies doing it more and more, it will become more accepted.”

Under the pricing policy launched Tuesday by Universal Studios, tickets bought at the gate remain $95. But visitors who book tickets online for low-demand days – such as a weekday in March before Harry Potter opens – can save up to $15.

During weekends and peak demand days during spring break or summer, parkgoers save only $5 by booking online.

Universal wants people to plan ahead, which will help it manage its operations. Parkgoers can lock in prices by buying tickets online for dates through the end of September.

People who procrastinate might see online prices fluctuate depending on last-minute demand.

Buying online comes with another incentive – entry into the new Harry Potter area an hour before the rest of the park opens.

The new Harry Potter world will feature two new rides, one restaurant, a food cart and eight shops based on the wildly popular books and films about the boy wizard.

Harry Potter has already been wildly successful at Universal’s other parks. After a Harry Potter ride made its U.S. theme park debut at Universal’s Islands of Adventure in Orlando, Florida, attendance jumped nearly 30 percent in 2011, according to estimates by Aecom, a Los Angeles engineering firm.

Additional Harry Potter attractions were added later at nearby Universal Studios Florida in 2014, boosting revenue by double digits for Universal Studios’ parent company, Comcast Corp.

Experts say variable pricing can help spread out attendance spikes and ease frustration that is sure to rise when a new attraction opens, producing long lines and shoulder-to-shoulder crowds.

“Demand-based pricing not only helps maximize ticket revenues, but also provides a tool to shift price-conscious consumers to less-busy days,” said Michael Erstad, senior consumer analyst at New York-based ITG Investment Research. “Spreading visitations throughout the week may help improve the overall customer experience at the park.”

So far, Universal isn’t increasing its maximum price, although park officials didn’t rule out such a move in the future.

Disneyland Paris already employs a form of variable pricing that raises rates on weekends and high-demand weekdays. For example, a single daily adult ticket to Disneyland Park and Walt Disney Studios Park valid throughout the year costs $101, while a ticket for lower-demand dates costs $85.

But demand pricing has yet to catch on on a permanent basis throughout the theme park industry partly because visitors get frustrated when too many variables are added to the ticket-buying process, Lewison said.

“It’s a conservative industry, overall,” he said.

Discovery Cove, an Orlando boutique park where people must make reservations to swim and interact with dolphins, has for several years offered lower prices for low-demand days. Discovery Cove, owned by SeaWorld Entertainment, is an all-inclusive resort-type park with a limit of about 1,300 visitors a day.

Other parks have offered lower prices on off-demand days on a limited basis for special events such as Halloween Horror Nights at Universal Studios Hollywood and Mickey’s Very Merry Christmas Party at Walt Disney World. SeaWorld San Diego offered discounts for weekday tickets in summer 2014.

Walt Disney Co. may be considering demand pricing to spread out the crowds that are certain to arrive when Disneyland in Anaheim opens its highly anticipated “Star Wars” land, industry experts say. Construction of the 14-acre area began last month, but a completion date has yet to be announced.

A Florida version of the Star Wars area also will be built at Disney’s Hollywood Studios, which is part of Walt Disney World Resort in Orlando.

Disneyland is already wrestling with a crowding problem and growing frustration among guests. The park has closed its gates temporarily over the last few years on days when attendance exceeded the park’s capacity, such as Christmas Day.

Attendance has been on the rise at Universal Studios Hollywood following the opening of several new attractions, including Transformers: The Ride 3D in 2012, Despicable Me Minion Mayhem in 2014 and Fast and Furious-Supercharged in 2015.

But the park has yet to close its gates because of overcrowding. The Harry Potter area could test those limits, experts said.