Question: I'm in the process of starting my own business, a pie shop. How do I know how to price my first pies?
Answer: I love all kinds of pie, especially if there’s ice cream on top. I can buy a pie at Costco for about $8; I can make my own; or I can visit a specialty shop like yours for a scrumptious treat.
For consumer-oriented products, the job of product pricing isn’t just a financial decision, but a marketing one, too. Certainly, you want to sell your pie at a price that amply exceeds your cost of goods and helps cover your company’s marketing and administrative costs. This kind of straightforward financial analysis can help entrepreneurs determine just how many pies must be sold per week to reach important milestones of financial sustainability, like break-even cash flow.
But don’t stop there! Your ability to sell your pies at a premium price over Costco won’t be based on how much your company needs to survive, but on your customers’ appetite for your company’s brand. Notice that I said “brand,” not “pie.”
Consumers are happy to pay a premium for brands they love and value. They shop for what they want first and think about price second. If you create a brand ethos that exudes satisfaction, happiness, exclusive status and more, then consumers won’t compare your prices to commodity-oriented competitors.
In addition to spending some time defining what you want your brand to represent in the marketplace (your company’s “brand promise”), here are three tips to help you get a premium pie price from enthusiastic consumers:
1. Create a specialty item. Before opening, select one pie as your “trademark pie.” Tell everyone that you’re known for this unique pie. Charge a higher price for this pie, too — and maybe one day the Food Network will feature this killer pie on one of its shows!
2. Bundle special offers. One way to disguise single-product pricing is to bundle products to sweeten the perceived value for your customers, which is crucial for startups that might not yet enjoy steady customer traffic. Test different offers based on the percentage success in converting one-item purchases into multiple-item purchases. Also, think about ways to encourage consumers to buy more than what they need. For example, can you market a pie that freezes well to have on hand for entertainment emergencies?
3. Target premium customers. Your advertising dollars should only be allocated to securing customers who are most willing to pay a premium price. Brainstorm the types of customers who care about buying a “quality experience” that will be a positive reflection of their good taste. Don’t spend your precious marketing budget on attracting veteran coupon clippers who’ll talk more about a great coupon deal, rather than your amazing pies, to their friends.