Brand Strategy: Position and Pricing

So, I’m working brand strategy with a client who is very clear about what they do. During strategy, I asked who they’re audience is, who their service is for. As many business owners do, they do not want to exclude anyone. In other words, they’d like to serve everyone.

This husband and wife team have differing opinions – one wants to attract clients who, let’s say, would be more interested in luxury brands; the other wants to attract clients who would be interested in luxury, but also brands that are more affordable. So they agree but disagree. They differ in their focus. But, this tells me they haven’t determined their brand’s position.

If you sell products or services, there is nothing wrong with wanting to attract those on either end of the spectrum – and some in between. But when it comes to marketing, you’ll soon discover that everyone does not respond to the same things in the same ways.

Price is one of these “things”. Not simply because of price – how much it costs – but because value – what it’s worth – is extremely subjective. 

Your brand position can help you overcome this subjectivity – or, at least become less concerned with it.

Value > Price

We all know someone – or maybe you’re that someone – who pays way more for something than others you know. I’m not talking about what someone can afford, that’s one’s own prerogative – we’re not judging people’s choices. But, why would one person buy THIS, another buy THIS, and another buy THIS?

What’s going on here? We’ve got three brown satchel-style handbags. They’re each very nice handbags and serve the same purpose. Right?

Well, yes; but also, no. Here’s why using the Louis Vuitton bag option as our example.

[PERSON A] (me) It’s just a handbag. I can’t say that I’ll ever be willing to buy the Louis Vuitton bag because I don’t believe it’s worth the price. I just can’t see it. If someone were to give it to me, that’ll be a different story, entirely. Because….well, you get it. I’d pick the Michael Kors bag if I were treating myself, but I’d more than likely choose the Aldo because it will get the job done.

[PERSON B] It’s more than a handbag, it’s a status symbol and she’ll buy it no matter what because it makes her feel good about herself and her status in life.

[PERSON C] It’s the quality. This bag is more than worth the price because she plans to have it for a long time. It’ll be one of the only two bags she’ll own. Or, maybe it’s the only bag she plans to buy for several years because she knows it’ll last.

This is often called perceived value, but value, nonetheless. 

PERSON A (me) doesn’t perceive this as a valuable item because its utility (usefulness) is no different than its alternatives. I don’t get it. 

To PERSON B this is a valuable item because of how it makes her feel about herself. It contributes to her personal well-being or self-esteem, and you can’t put a price on that.

To PERSON C it’s something that will save her money in the long run, it’s an investment. She won’t have to buy a new purse every year or two because it wore out. She’ll buy the purse and use it for several years until it wears completely out.

Perceived value isn’t a judgment of how good or bad your product or service is. It’s the way someone judges whether or not your product or service is for them. 

I, as PERSON A, didn’t base my judgment of Louis Vuitton’s on their position, I judged them on my perception of the price vs. its value to me. 

“Price is what you pay. Value is what you get.”

– Warren Buffett

Position Determines Price

Louis Vuitton is over 100 years old and started as an artisanal trunk and luggage company. They continue to be known for the unmatched craftsmanship, quality, and design of their pieces. Based on their position, I think the Louis Vuitton brand is fabulous, and I see why others will gladly purchase their products.

Basing your price on value will attract those who get it and repel those who don’t. Don’t take it personally or as an indicator that you should lower your prices. It may be that it’s just not for them. Be okay with that.

I love that Warren Buffett quote so much because it really helped me understand pricing. It is hard to compete simply on price these days. Market value may place a cap on what you’re able to charge. If your price is far above what everyone else charges, you may not get the sale. 

But, his quote challenged me to think about the value of my services, not just the price. I asked myself, and I challenge you to ask yourself – “What are my clients getting for what I charge? Can they get this somewhere else?”

Answering this question is a game-changer when it comes to comparing your prices to someone else’s. For me, it meant the difference in seeing myself as simply a graphic designer, to being able to also see myself as a strategist. It allowed me to change my position, which allowed me to confidently change my pricing. Where previously, I changed my prices without changing my position and that didn’t work out so well.

Undoubtedly, Louis Vuitton is rock solid on their positioning. Their position isn’t a judgment of whether or not I can afford their product. Instead, it affirms the value they place on their craftsmanship, quality, design, and reputation. Imagine them lowering their price, to capture a sale from someone like me. Someone who doesn’t appreciate their value. Doesn’t make sense, does it?

If you adjust or want to adjust your price, but you keep asking yourself, “But can they afford this?”, consider adjusting your brand’s position. Doing so may mean that you can no longer serve who you’ve served in the past. But you’ll gain others.

Compare Apples to Apples

Once you know your position, establishing your prices should become simpler. You want to consider market value – what your competitor’s charge – to see where your prices could fit. Knowing your position is crucial here.

In the earlier handbag example, the three bags we compared are from companies with different positions. That is why the prices are so different, even though the product – at face value – is the same.

When determining the market value for your product or service, you want to compare prices with companies that have a similar position to yours.

It’s a mistake to set your price, solely, on the face value of what others are charging because;

[1] You don’t know how your competitors arrived at their price.
[2] You don’t know if they are profitable at those prices.
[3] Your goals aren’t their goals. Also, their goals aren’t your goals.
[4] THEIR VALUE MAY NOT BE YOUR VALUE. (position)

But before you set a definitive price, you should know what it’s costing you.

What does it cost you?

Find out what it’s costing you to provide your products or services lay the foundation for your prices. Don’t take a look at the market and make your best guess as to where you fit. Here’s a good formula, for service-based businesses, that I’ve used and passed to my client. I’ve used it to get a feel for where I should price certain individual services like web design.

( Hourly Rate x Production Hours) + Materials = Production Costs

You can learn more about determining Production Costs here, here, and here. Even if you charge a flat service rate, you should know how much it costs to produce the end result and time goes into that.

I can’t think of anything that costs zero time to produce. And behind that time, there is a person who deserves compensation, even if it’s you. And don’t simply consider the base hourly rate, insurance and benefits also deserve a place in the equation.

Outside of digital products, I can’t think of anything that has zero material costs to produce. Even in the case of intangible products and services, there are soft costs and overhead associated with their production. Software and hardware have costs. You get the point.

Your Production Costs will tell you how much it costs for you to produce the product and provide a foundation for you to begin pricing from. Profit is on top of this.

Example

You sell widgets. Another widget company, Widgetopia, sells theirs for $12.00. Two other companies, Widgets-4-You and Widgie, sell theirs for $23.00 and $27.50, respectively. From your research, you determine the range for widget prices is $12.00 to $27.50. 

However, Widgetopia is positioned as a budget widget company and you’re not. Widgets-4-You and Widgie are more closely positioned to where you are – a mid-priced widget company. So it’s not realistic to consider the price range as starting at $12.00, but $21.00.

Besides, it costs you $9 to produce a widget. Modelling Widgetopia, if you sell 1,000 widgets you’ll make $12,000, but you’ll spend $9,000 and end up with $3,000. Yikes.

Meanwhile, it costs Widgetopia $3.00 per widget. They’ll spend $3,000 on those same 1,000 widgets, and make a $9,000 profit.

How do you compete with Widgetopia? You could consider changing your position to a budget widget company, which would also require that you reduce your production costs. Or you don’t. You set your price in consideration of your production costs and position, evaluated against market value, and not compromise your position, value, or profit.

The Price is Right. Or is it?

The latter part of the previous section kinda leaked into this one. You know your position and your value. You’ve calculated your production costs. Based on market value comparisons, you’ve got a range of prices – profitable prices – that you can use. 

But, how do you know where to land? How do you set a price that aligns with what someone will pay?

Depending upon your business, market value will suffice. But, if there isn’t a market for luxury widgets, you may not be able to justify a $50 widget price. But that doesn’t mean you can’t carve out that lane. Look at Dyson.

But if you’re in doubt, need to make a decision, or are considering raising your prices for any reason, here’s are some ways to verify your price.

Ask your friends in the industry

If you’ve established relationships with those who are positioned and/or structured like you, ask them what they charge. Make sure you’re comparing apples to apples, though. Don’t compare yourself to a company of one if you have staff. Don’t compare your goods to those that are mass-produced if you’re an artisan.

Ask your most trusted clients

Don’t be afraid to ask the client how much they’d pay for the value they get from you. If they flat out tell you that your price is low; that’s an indicator that you should consider raising your prices. (My client’s had this experience.) But before you raise them, ask them how much they’d pay for the value you provide. They will tell you what you’re worth when you can’t see it.

Conversely, if they tell you that your price is too high, it may be that you need to look at your positioning and compare market value before adjusting your price. It may be that your product or service isn’t for them, not in a condescending way. Remember, price isn’t subjective, value is.

Look at Industry surveys

Find out the authority in your industry and examine the reports they publish that contain prices or profit margins for what you offer. This is especially helpful if you don’t know anyone who does what you do. But, even if you do, you can see what other people are charging. Keep in mind that this source may contain data from businesses that are positioned differently from yours, but it’s still good to know what’s possible.

Check with Yourself

Ultimately, you know what you’re comfortable with. It can be easy to have a set-in-stone formula to follow, but it is ultimately your decision. Ask yourself a few questions about how comfortable you are with your prices. Here are a few to get you started;

Am I comfortable with the amount of profit I have factored into my price?
Does my price align with what other companies LIKE ME are charging?
Is my price in a range that someone will be willing to pay?
(Source: Michael Janda, author of The Psychology of Graphic Design Pricing)

Final Thoughts

You don’t have to sell yourself short, apply your best guess, or have your prices fluctuating like the Dow Jones Average, to compete in the marketplace.

The point of positioning is to avoid having the knee-jerk reaction of raising or lowering your prices but to make sure that you understand your position and judge whether or not your price is fair while remaining profitable.

Know your brand’s position. Confidently stand by your products and services. Give your clients your best. Stay in business.