In the dynamic world of Direct-to-Consumer (DTC) business, setting the right price can be akin to hitting a moving target.
Yet, the price tag you slap on your product can communicate more than just cost; it speaks of the product’s perceived value, quality, and brand positioning.
Launching a DTC product brand has its unique set of challenges.
Arguably, one of the most crucial aspects is determining the perfect price point.
It’s not just about covering costs or generating profit. The right price gives potential customers an immediate impression of the product’s value and quality.
Low Hanging Fruit:
After working with hundreds of DTC brands over the past 6 years, here’s an inside secret: Many brands undervalue their products. In reality, they could bump up their prices by a significant 20% without batting an eyelid.
This not only amplifies the perceived value of the product but can also create an immediate opportunity for increased revenue.
Three-Step Formula for Early Pricing:
Now, before you rush off to change your prices, consider these three foundational steps, which make the 10-5-20 principle.
This rule, oftentimes used to explain how to increase prices in a healthy way with SaaS products, can easily be applied to eCommerce brands as well.
- 10X Value: This is all about perception. For every dollar that a customer spends on your product, they should feel they’re receiving tenfold in value. This might sound ambitious, but when a consumer feels they’re getting more than what they paid for, they’ll not only become repeat customers but also brand ambassadors. If the value perception can’t be quantifies easily, your prospects might not feel like it’s a good offer
- 5% More: Don’t settle for static pricing. Instead, use dynamic pricing models by continuously testing and tweaking. One tried and tested method is to raise your prices by 5% for every new customer segment or defined block of customers. This gives you real-time data on your product’s value perception and helps pinpoint the price ceiling your market will bear.
- 20% Push Back: Keep an eye on the reactions. As you increase your prices, be prepared for some resistance. Once roughly 20% of potential customers begin to resist or decline purchasing because of the price, you’ve likely found your upper limit. If every potential customer is snapping up your product with no second thought, you might be undervaluing it.
Combine the steps above, and you have the 10-5-20 rule: strive for a 10X value perception, be prepared to adjust by 5% increments, and anticipate a 20% pushback rate. It’s a simple yet effective formula that can lead to pricing perfection.
Undervaluing can be just as detrimental as overvaluing. Most DTC brands are positioned perfectly for a price recalibration. By implementing a thoughtful pricing strategy that focuses on providing genuine value, brands can accelerate their path to profitability, ensuring they cater to a market that appreciates and recognizes the worth of their offerings.
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