Developing your pricing to suit your customers -the three star approach

These tips on pricing are applicable even if your business has only one product or offer just one service,  as it is possible for you to package that product or service in a way that you can offer various options to customers.

First, however, you need to decide on the standard price. ice for your product or service. Then, you consider whether or not you can sell the product in a smaller quantity or offer a shorter version of your service, i.e., a taster version of either your product or service. In doing this, you allow existing or potential customers to sample your product or service at a lower price, but you should not dilute the quality of what you are providing.

On the other hand, if the single product or service offering is the taster, then you should consider how you can increase the amount offered or frequency for customers who prefer or would be willing to purchase more of your product or service.

Drawing from the pricing strategy used in the airline industry, especially with budget airlines along routes that are serviced by several airlines, below is a summary of  a pricing strategy employing the one to three start approach to the service provided.
Example using services offered by budget airlines

v  Three star –air fare only, does not include hand luggage allowed (£100, return fare)

v  Four star –air fare, up to 10kg hand luggage allowed (£250, return fare)

v  Five star –air fare, up to 15 kg hand luggage, priority check-in (£300, return fare)

When using a menu of prices for your business, you will get best results from choices made by customers if the price difference between most expensive and middle option is smaller than price difference between middle and least expensive.In the above example, the four star package costs more than the mid-point price between the lowest and highest packages. This means that the business stands to earn at least £50 more than if the second option was viewed as the mid-point between the highest and lowest-priced offerings.

Do you agree with the '3-star' approach to setting prices in your business? Have your say below!


For more information about similar articles or how you can improve customer service in your business, contact Your Small Business Coach.

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How to set your prices for greater customer value and higher profitability...

Pricing and small businesses

Pricing is one of the essential pillars of any business, yet it is an area often ignored! For businesses offering more than one product or service, an ideal way of setting pricing is developing the prices based on a menu of services/products.

For many small businesses, however, setting the price is a huge challenge and sometimes may be caught in a price war as customers use the threat of moving to the competition to drive prices down. Here are a few tips to get you started on providing greater value AND run a profitable business.

Pricing tips

1.   Decide on a pricing strategy for each product or service offered by your business, For business owners offering products for sale, your pricing strategy can use as a starting point the price of inputs or wholesale for goods that are resold. That, however, cannot be the only basis as you need to consider which end of the market you are targeting, e.g., low price vs high value.

2.   Simple pricing strategies that small businesses can consider, whether offering goods or services, are:

i) Value-based pricing

ii) Low Introductory Price

iii) Promoting Customer Loyalty

iv) Brand influenced pricing

3.   Make sure that you have a range of packages for different budgets. This makes it easier for their clients to choose which of the three packages suits them best.)

More tips to follow in subsequent posts.
Comment on the blog and share how you set prices for your products and services.
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