If you’ve been researching how to price your work, you’ll probably have seen the traditional cost-plus pricing strategy.. This approach takes all the costs associated with developing and delivering the product and then adds the desired margin to set the price. STOP THAT!
In reality, what gets people to buy is perceived value, not the cost of materials. With the ease of obtaining customer data through the internet today, more and more makers and creatives are setting their prices the right way—by using customer-driven pricing.
Why Customer Driven Pricing Works
Once the customer understands the unique value, what do they expect to pay for it? What are they willing to pay for it? Customer-driven pricing works because it emphasizes the customer, not the product. You set your price according to their expectations.
Customer-driven pricing also works because it reflects actual market conditions. It considers not only what the individual customer will pay but also other market factors like competitor products.
Know Your Customer Well
The key to success with customer-driven pricing is to really understand your customer well. When you do this, you’ll have a much better idea of what and how to speak to them with your marketing material, or even face to face. The way to do this is to create what marketing experts call an Ideal Customer Avatar.
An Ideal Customer Avatar is a fictional customer you create using what you know about your previous buyers and your best guesses.
A key part of this persona creation is understanding how your handmade art or creative service solves a problem the customer faces or speaks into a value they hold dear. How well you can do this is what determines its perceived value. The key to selling is to show the customer how your product solves their problems and improves their life.
Other Ways to Add Value
In addition to how your product solves problems, there could be other types of unique value. For example, it might offer flexibility in pricing. While your competitors offer only one version, you offer various versions at different price points so the customer can purchase the right one for them.
The Challenges of Customer-Driven Pricing
To create your customer profile, you’ll need to communicate with your audience and get their feedback so you can use this data to help you determine the right price. One challenge here is that people aren’t always honest about the price they’re willing to pay. You have to combine data from customers themselves with objective data on sales to see what products are selling at what price points.
The other challenge is that if you base pricing solely on your customers, you could be pricing too low and leaving money on the table. Naturally, people would rather pay less than pay more for products. You can charge more for your products by ramping up your marketing and positioning your product for its uniqueness.
Offering True Value
The point of customer-driven pricing isn’t customer satisfaction but to offer the best value possible for you and your customer. Base your pricing on the customer to start a conversation with them and monitor as you start selling the product so you can make changes as needed.
Want More On Product Pricing?
Want to take a look at more strategies to help you define your product prices? Read our blog “How Do You Know If Your Price Is Right?” for a deep dive into this question.
Thanks for dropping by Handmade Life. We look forward to seeing you again soon.
Do you want to learn more about how to create an Ideal Customer Profile and setting your prices? Check out our Handmade Life Academy courses coming soon!