Do you have price strategies for determining how much you should charge for your product or service? I received an interesting question from a business entrepreneur. “Where can you find buying statistics on what someone will pay for a product by demographic group?”
That’s a pretty unique request though really important when you are trying to figure out the best how much you should charge for your product. Maybe people in different age or income groups would be willing to pay more for your product and you don’t want to charge too little. But if you charge too much you’ll lose your customers. There’s likely an optimal price point for your product but the problem will be finding some standard data or formula that leads to your unique price strategy. So how can we approach the question of what people are willing to pay?
First, don’t bother looking for standard Census or consumer buying data for this. That type of data is much to general and most often provides standard budget expenditures for categories of products like groceries, housing, fuel, restaurants, and so on. We want to know what people age 30 to 49 will comfortably spend on the custom widgets that we import.
- One of the first things you need to be clear about is your target market? Do you know their demographics – age, income, education, type of area they live in? All those factors can affect demand and price points. Are we talking about the general national population or the population of your local metro?
- Price differences across different cities and states can be important also. You can find the official Consumer Price Index data for some large local metros from the federal government at www.bls.gov/data/#prices. There’s also cost of living data for more local areas at www.coli.org though this isn’t a free service. These sources still don’t answer the question of “how much should I charge” or, “what will consumers pay” for a particular product, just what the general price differences are in different areas. Your best price strategy for determining local costs may just be a window shopping trip through your local stores. This is likely a good indicator especially when you relate that to the demographic characteristics of the local market. Are you looking in an upscale area, middle income, or low-income.
- Another price strategy is “what would people pay on Amazon”. Say you’re marketing a tutorial package on how your high school student can improve their SAT scores. Look on Amazon and search for improving SAT scores. I found almost 300 results in book, video, and audio formats. This type of search does two things: gets you to a wide range of similar products and focuses on your target market which is high school students. And don’t forget to pay attention to the “used price” for your item. This is often a better indicator of what people are willing to pay.
- Finally, if we’re talking about marketing to your specific list or community, then your best option is to go straight to your list and do some split testing to answer the question “how much should I charge?”. That’s the only way you’ll know for sure how your community of followers will respond to price differences.
Bottom line, external data on buying habits of specific demographics simply may not get you the information you need. Nothing will substitute for your direct research and testing for your specific target market. Listening to your customers, whether through direct testing or simply paying attention to what they tell you they want will always be your best information. When you ask yourself the question “how much should I charge?”, use your price strategy to come up with an answer.