The 3Ps of Pricing: Positioning (Part 3)

Check out The 3Ps of Pricing: Perception (Part 1) and The 3Ps of Pricing: Placebo (Part 2).

Thus far in the series, we've discussed the considerations of Perception and Placebo. As you may recall, Perception was the pre-purchase consideration in pricing, whereas Placebo was the post-purchase consideration.

Positioning is a consideration that's at play both before the purchase and after the purchase. Because your product doesn't exist in a vacuum, your potential customers will be comparing the price point of your product to the price point of other similar products, even if they're not doing it at a conscious level.

Let me explain that last point a bit. Even though we might not be consciously comparing one product to another, we've internalized the accepted price ranges that are in the marketplace. I used to think that it was entrepreneurs and marketers that established these accepted price points, but that perspective was naive - the truth of the matter is that consumers have a strong effect on these price ranges. (There's a third player here, too, but I'll save that for another post.) I'm not saying this view is naive because I've theoretically learned the role that consumers play; I'm saying it's naive because I've seen this play out in the field.

Let's imagine that you walked into a store and there was a new washer and dryer set being sold for $200 for the set. If you're honest with yourself, the first thing that popped up for you was probably, "what's the catch?" If so, you've internalized that a new washer and dryer has a certain price range if it's of decent quality even though you don't know how much it costs to make a washer and dryer. As I mentioned in Part 1, it would be harder to sell a washer and dryer at that price range precisely because consumers are less likely to pay for an perceived "cheap" product.

Thus, Positioning and Perception are intimately linked in this way. Because each product is positioned in a market place with other similar products, the price points of the other products play a strong role in how we perceive the value of the product in question. Ignore how your product is positioned at your own peril.

However, Positioning comes into play after a consumer makes a purchase, as well, because they'll compare their outcomes, results, and experiences from this product to other similar products they've purchased. If they paid $97 for your product but got better results from a similar product that costs $47, they're more likely to think your product was overpriced, even though the other product may have been underpriced. This has the potential to lower their commitment to your product, so their actual results, outcomes, and experiences will likely be lower, too. For this reason, Positioning and Placebo are intimately linked.

Internal Positioning and External Positioning

Most of the discussion thus far has revolved around external positioning, that is, positioning the price of your product by taking cues from other similar products in the marketplace. While external positioning is a necessary consideration, it can throw you off substantially if you don't take time to do some internal positioning.

Internal positioning is a matter of making your product innovative, creative, and remarkable. When you're designing your product, you should have a good idea of what's positively unique about your product that makes it stand out, even if this good idea is hard to articulate.

Here's the basic idea: if you create a product that's just like all the similar products on the market, you almost have to compete on price. The more innovative and remarkable your product is, the more you'll be able to favorably alter the price of your product since it's unlike the other things in substantially important ways.

The catch here is that the unique components of your product have to add value. Adding another chapter to an ebook is not necessarily adding value. Adding a chapter that lists free resources that people could use to augment the deliverables from your product might, though.

[Sidebar: don't just add a ton of info to an info product under the belief that it adds value. That worked a few years ago, but information overwhelm was much less of a problem then. Don't include information because it fluffs the amount of information - only include it if it is useful, relevant, and adds value.]

The same thing goes for physical goods, too, and there are just as many ways to be creative about it. For instance, if you're a photographer, create a package so that your customers can have their pictures sent to them in premium frames. That's value-added because it takes out the hassle of finding matching frames for all of your newly-ordered pictures, and that increases the chance that your pictures will end up on the wall. If it's on the wall, it's marketing for you. Sure, this increases the price of your product, but it creates different outcomes for customers.

Another way to do some internal positioning is to understand how your customers are going to use or experience your product and speak directly to that use or experience. A mother who has pictures taken of her baby doesn't really care about the physical pictures - it's the memories that you've captured that she cares about. What does she want to do with those memories? When you're developing and marketing your product, keep that question present for both you and your customer.

The goal of internal positioning is to be so unique and relevant to your customers that they don't compare your offer to others because it's the only thing in its class. The better you position your product internally, the less you have to worry about its position externally - and this is the difference between you knowing your market and you being defined by your market.

Using External and Internal Positioning In Tandem

Obviously, you can't ignore the market when you're thinking about pricing, but you'll also quickly figure out that there's a range of prices for similar products. The goal, then, is to use external positioning to determine a price range and internal positioning to determine your actual price.

For instance, you might notice that there are similar products on the market that range from $10 - $50. That gives you a good range to play around in. At the same time, you know that your product has several unique and innovative things about it, so there's no reason for you to hang out in the sub-$30 range, especially since you're aware of the perceptions around the value of products in that range.

After you do some more market research, you see that the products in the upper range of that are being sold by well-established experts, but the products aren't all that innovative, cool, or useful. You have at least two hands to play here: 1) position your product so that it shoots for the middle market between the "low-value" stuff and the premium stuff, or 2) position it such that it's an innovative product that's importantly different than the experts' stuff.

[Sidebar: An easy way to take the second route is to offer some type of follow-on service that the too-busy experts can't deliver. Not only is this value-added for your customer, it allows you to build an experience around your product that the experts can't match.]

I can't tell you in a general post like this which hand you should play - I'm just wanting to show you how considering Positioning can give you the confidence to play the hands you've got.

When I started this series, I said that there's an art and science to pricing, and I'm hoping that you're now starting to see why it's that way. You've got three different major considerations you've got to balance, and so much about those considerations isn't just about the price - it's about the perceptions, experiences, and (often) subconscious judgments of value that customers have both before and after buying your product.

Of the 3Ps, which do you struggle with the most? Which of the posts in this series has been most helpful or given you the most to think about?