What is the difference between cost-based pricing and value-based pricing?
Cost-based pricing is a model where you work out how much a product or service costs to deliver and set your price accordingly. As long as you factor in all your overheads and sales & marketing costs, you will be able to work out your profit margin.
Value-based pricing is a very different model, and people often struggle to get their heads round it, so I use this story to explain what it means...
In my last blog ("What's the point of marketing?") I discussed how the first step in engineering a new product is to establish its purpose. In marketing it's the same, you need to establish the purpose of your marketing and how it needs to support your customers at every stage of their buying decision.
Once you've done that, you need to define your specification.
An engineering specification or functional design specification will typically include everything you want the product to do, how it should work, how it should be manufactured, timescales, cost restrictions and any other pertinent requirements.
In my last blog, I used the example of designing a keyboard. In this scenario, I'd need my specification to describe...
It's always tempting to sidestep this phase or start with a rough outline of what you want to achieve, However, the consequences of this approach can be costly.
Every new product, software, system or process must have a purpose. It must solve a problem or else it has no value and no one will buy it. By deeply understanding the problem your product solves for your customers, you can stay focused on what features will deliver the most value.
For example, if I was designing a new computer keyboard, I would need to consider...
Likewise, you must always stay focused on your marketing's purpose.
I always say that creating a marketing wish-list is easy – it's prioritising it that's the hard part. That's why I use the Watertight Marketing methodology with many of my clients. It's a logical and structured approach to prioritising your marketing activities to get the best return on your investment.
Using this approach, you "traffic-light" the "leaks" in your marketing processes and address the red leaks first, in the right order.
But it's not a once-and-you're-done activity.
I recommend clients review their leaks every six months or so, to stay focused on their priorities and on track to achieve their long-term goals.
As you might imagine, after working on addressing a red leak in your business, hopefully it will turn orange and then eventually green. However, that doesn't always happen. Why? Because you are working towards a constantly moving goal-post.
Most people who aren't marketers think of marketing as "getting your name out there". That if you want more customers, then you just need to tell more people about your product or service.
This assumes two things:
1. That as soon as people hear about you, they'll just "get it" and immediately understand the benefits of your product.
2. That the decision to buy is an easy one that doesn't involve too much thought.
If you sell an impulse-buy, like cupcakes, chocolate bars or jewellery, those assumptions are probably correct. So a marketing strategy that focuses on promotion (or "getting your name out there") is probably correct.
However, for most businesses I work with, at least one of these assumptions is wrong.
How long does it take to buy from you?
This sounds like an easy question. But, it actually has 3 different answers depending on what you want to do with the information.
You might be talking about elapsed time, accrued time or your welcome window. Here's the meaning of each time-period and when you should use it in your marketing strategy.
Last month I posted about how to do your own strategic marketing. It's not an easy process which is why most ambitious business owners get a consultant in.
I've worked with a lot of businesses who have worked with a consultant before me. But many tell me they've not been very impressed with the results. The reason is invariably because the consultant was thinking tactically and not strategically. For example, they were focusing only their area of expertise such as social media or PR.
Unless you know what to look for, this can be difficult to spot. The impact might not be felt until it's too late, when a lot time and money has been spent.
I'm writing this list in the hope that my clients will keep me accountable to it. If I'm doing one of these things then my standards are slipping and I don't want that to happen. So hold me to it!
Here are the signs to look for:
Today I'm going to show you exactly what I do as a strategic marketing consultant. I’m going to share the 6 steps that I would take you through in creating a robust marketing strategy. If you do all this then you won’t need to spend a penny on a consultant like me.
But why on earth would I do this? Am I trying to put myself out of business? Far from it!
I’m prepared to bet that the kind of ambitious business owner I’d like to work with will take one look at this and say, “That’s an awful lot of work Ros, I don’t have the time and besides, I need an outside perspective to do this effectively. Why don’t we talk?”
So, here’s your complete guide to doing your own strategic marketing. If you find you can't or don’t want to do this alone - do give me a call.
When I start working with a client, one of the first questions I ask is "who is your ideal customer?" How specific the answer is varies a lot, but from a short conversation I can usually assess whether they understand their customers well enough.
What do I mean by "well enough"? Well, if you don't understand your customers very well then it's unlikely that your marketing will resonate with them. You'll probably end up taking a "scatter-gun" approach to marketing and wasting a lot of time and money in the process. My blog "Do I need a customer avatar?" explains more.
So how do you know whether you understand your customers enough to effectively market to them? Here are the signs I look out for...
Most start ups don't have the luxury of being able to turn work down. So when a business is new, it's usually necessary to take whatever work comes along, even if it's not exactly the best kind of work for you. And this can end up being a slippery slope because, if you're not careful, this "not the best kind of work for you" becomes what you are known for and you end up getting more similar work. This can be very frustrating and difficult to break out of.
So how do you make sure the work you are doing is the right kind of work for you and your business? Here are a few great blogs from my fellow Watertight Marketing Accredited Consultants on the subject. Enjoy!
Get my latest blogs, news and events every month by signing up to my newsletter