A tailored pricing strategy is proven to maximize revenue. Here is a primer on core pricing strategies.
Deciding on the value of a product or service is easier said than done. While it is technically just a number, it is ultimately more than crunching numbers and laying down a figure. You can set prices scientifically and then add some qualitative input to the mix. Accountants call this “good will;” marketers call it “brand.” A strong brand allows you to price at a premium, among other benefits.
Take Starbucks, for example. Ordinarily, a coffee would not cost you $6, but when you get a tall mocha Frappuccino from Starbucks, you pay for the brand and thus pay a premium price.
For professional associations and non-profit organizations, pricing strategies are equally complex – maybe even more so. How exactly do you set a price on memberships or subscriptions? Here’s what we learned from our 2022 survey of senior executives about how they are managing their pricing:
|
Method |
Have good value prop |
Lack good value prop |
|
|
Member Dues |
Value Attribution |
43% |
21% |
|
Cost Plus |
10% |
26% |
|
|
Benchmarking |
19% |
15% |
|
|
Products & Services |
Value Attribution |
41% |
27% |
|
Cost Plus |
27% |
35% |
|
|
Benchmarking |
15% |
38% |
Source: Halmyre. Growing Value: Findings of the 2022 Non-Profit Value Proposition Survey
To start, view our presentation on pricing strategies for a 5 minute overview:
Here is a summary of both the classic and more current pricing strategies.
Classic pricing strategies
First, there is Cost Plus, which is the most basic method. You simply apply a fixed percentage mark-up to your cost for providing the product or service. This approach requires minimal information and simple calculations, and offers insurance against changes in cost. However, it is not the most effective strategy if you want to stay ahead of the competition because relying on this system can lead you to ignore competitor pricing and the role of your customers.
Second is Market Demand, in which price is a combination of demand for the product or service and homing in on how much customers are actually willing to pay. This strategy gives you a lot of room to maximize your profitability, but you need a good grasp of market demand to be able to make this work to your full advantage.
Thirdly, Competitive Positioning is when you set the price relative to the price of the competition, ensuring your price is strategic. This approach ensures alignment with value positioning relative to competitive positioning, but it does require competitive intelligence, which makes it seem like you are giving your competition the power to control your pricing.
The modern landscape paves the way for new takes on pricing strategies beyond the classics.
More current pricing strategies
Employing a Donation-Based, or Pay-What-You-Can or Want, system can work because it offers flexibility. However, your organization will likely run into a significant number of members or subscribers who are only willing to part with a donation that is at the bottom of the spectrum, so don’t expect a surge in revenue with this approach. This method is a viable option only if you have already established a loyal and dedicated audience.
Another method is Freemium Pricing, where you offer free basic services combined with access to more advanced services for a premium. This strategy is effective in generating interest, acquisition and trial, but sustainability is harder to achieve. The conversion of “triers” to paying customers requires a difficult balance between free and fee.
An alternative to those two options is to eliminate customer or membership fees entirely with the objective of securing financing from other sources. This approach may bolster membership and broaden market share, but at the same time, there is potential for the devaluation and erosion of value perception of your underlying products or services. Lack of a membership fee also prompts members to ponder whether the association will feel obliged to address their needs, since they have not paid membership fees. And worse, if the organization does not meet its revenue objectives after taking the no-fee route, it would be extremely challenging to turn back.
Deciding which pricing methodology to adopt is a complex but necessary task. But if you do it hastily, you risk losing money or pricing yourself out of the market.
What to do with this information today
Settling on a pricing approach for your association requires in-depth understanding of pricing as a specialty of marketing and a solid grasp of the factors affecting your business landscape, including market research, competition, costs and brand perceptions. Once you understand these elements and decide on the best match with pricing strategy, you will be on the right track to optimizing your revenue.
We can help you.