Key Considerations When Developing Your Pricing Strategy

Pricing is a crucial element of business, and with the fluctuating economy, revenue strategies need to be carefully re-assisted to ensure the business continues to remain viable.

Here are some important considerations including what your price should include, as well as your legislation obligation

Calculating your costs

To ensure that your pricing will be realistic in sustaining your business, (especially with treatments that will take time to deliver), before calculating your pricing structure, you must benchmark them against the various costs associated with running your business.

These will include consideration of the following

• Wages
• Cost of product
• Time factor in delivering the treatment
• Consumables
• Equipment
• A ratio of costs such as rent, advertising and promotional costs
• Staff training costs
• Insurance
• Taxes and GST factor of the income
• Services fees e.g. credit card fees etc.
• Competitive considerations

As a service industry, the most important consideration is not the pricing of your retail products, as this process is usually fairly straightforward and determined by your supplier.

• On the other hand, your services, being the key drawing point to client/patient acquisition, will require that you meticulously and accurately evaluate the various costs that will go into their delivery.
• Once these are determined, you can then start analysing other factors that will also impact your pricing, such as your objectives in determining how the market will respond to the uptake of your services, this will include your current clients, as well as your potential clients.

Determine your pricing objectives

• A key consideration when you develop your pricing strategy is to understand your objectives.
• One objective of pricing is how they will contribute to your profit, but many other pricing objectives can affect your pricing decisions including

• Position in the market
• Competitors’ positioning
• Ability to supply to or increase demand.

It’s important to keep your business and marketing objectives in mind when developing your pricing objectives to ensure they complement one another.

By establishing your pricing objectives early, your choice of strategy may be easier to determine. Here are some considerations

Positioning

• Your demographic position can help you establish your products or services in the market.
• For example, consider your financial demographic.
• Are your A-List clients financially affluent who value quality and are prepared to pay for it whether it is a product or a service?
• On the other hand, are the majority of your clients, family members, with children and school fees, mortgages and other financial obligations?
• By carefully analysing your client demographic will allow you to determine how well your services and products will fit into their budget and meet their needs.

Remaining competitive

• For many businesses, being price-competitive is important, whether as a price leader or responding to the competition.
• When setting prices, it’s always important to anticipate what your competition will do in response to your prices and ensure that you factor it into your strategy.

Increasing demand

• Using price to increase demand, both with new, or existing services can be a good objective for enticing new clients or maintaining client loyalty,s when your financial figures are lagging.

• Within our industry, discounting services is not recommended, however providing value for money is always appreciated during financially challenging times.
• Introducing value packs that include products at a very attractive discount when included in the package with treatments, or an additional service included as part of the package at no additional cost, is a more suitable strategy that will not devalue your worth while enticing your clients in the investment.

Loss Leader Pricing

• A common strategy, mainly used by laser chains for attracting new clients is “loss leader pricing”.
• This is where a popular service that can be delivered quickly and economically, such as laser bikini hair removal, is advertised and promoted at a ridiculously low price.
• The objective is to shock consumers into taking up the offer because it’s ‘too good a deal’.
• While servicing this treatment may not deliver a profit, the objective is to get clients through the door, establish a relationship with them, and then promote other services at the standard price.
• It is popular because it does work. Can it backfire? Possibly, because it can also attract bargain hunters who are only interested in cashing in on discounted services. The only way you can know is to try it and see if it will work for you.

Legislation and regulations

• This is a key consideration for you as a business owner.
• When determining how you navigate the pricing issue it is important to ensure that you operate within the regulatory advertising guidelines as set out by the ACCC.
• If you are not sure of them, you can contact us

However, here are a few areas to be mindful of

Comparative pricing

• when you compare the current price of a product to the previous price, you must make sure you don’t mislead consumers. If you’re untruthful in any way, you will be in breach of the Australian Consumer Law.

Recommended Retail Price (RRP)

• This price is only a recommendation to a retailer. It’s illegal for a supplier to pressure resellers into selling products at or above certain prices or threaten to cut off suppliers if price demands are not met.

Predatory pricing

• This pricing occurs when a business, with a significant market share, reduces its prices for the purposes of eliminating or damaging smaller competitors. Predatory pricing is anti-competitive. If a business is engaging in predatory pricing, reports can be made to the Australian Competition & Consumer Commission (ACCC).

Price fixing

• This practice is illegal in Australia. Price fixing is where two or more competitors agree on setting prices or agree to charge certain fees.

Parallel pricing

• This practice follows the pricing practices of other businesses, mainly competitors. This is illegal when it’s a ‘concerted practice’ between businesses and it substantially reduces competition.

Multiple pricing

• This is typically done by error when a product is advertised with more than one displayed price. Under consumer law, a business must either sell the goods at a lower price or withdraw the goods from sale until the price is corrected.

This does not apply when:

• Advertisements state that prices vary in different regions
• A price is hidden by another price
• A price is displayed in an overseas currency or unit price.

Unit pricing code

• This regulation ensures that retailers calculate a standard measurement unit price such as litres or grams. Unit pricing allows customers to compare the price and value of similar types of products. Under the unit pricing code, it is compulsory for certain retailers to display both a product price and a unit price for grocery items.

Credit card surcharging

• You must clearly label any credit card surcharges that apply to your products or services. You can only charge what it costs you to accept that payment method.
• This is an important one that is often violated e.g. a business chooses to include a 3% extra charge if the product or service is paid by credit card when the bank may only charge them 0.80% or a lesser amount to the 3%.
• This is illegal.

While there are many determining factors that must be considered when evaluating and setting your prices when establishing what will adequately support your business, it is also important to remain flexible to the market’s response, as ultimately pricing success will be determined by consumer uptake.