What to charge for your goods and services is a very complicated topic: people get actual PhDs in pricing and there’s no one right answer for any business – each has to use a trial-and-error approach to find the right price for their products and services. There are also an unlimited number of variables a company can use to think about how to price their offerings, but here, in the first part of a series around the thorny topic of pricing, we’ll narrow them down to a few of the most common:
Get very specific on your customer base
Identify your competitors
Determine where you want to price your services vis-a-vis your competitors
FIRST: KNOW THYSELF
Before you do any sort of comparative or competitive analysis, you have to know your audience (and yourself – where do you see yourself and your business in the marketplace?) first and foremost. Your brand identity is key.
Every business must be crystal clear on its unique selling proposition – in addition to knowing your target audience, you need to understand what makes your product or service special, unique and extraordinary.
- “The COVID-19 pandemic has resulted in $94 billion extra spent online since March 2020.”
- “In 2Q20, $1 of every $5 spent by U.S. consumers came from online orders”
- “E-commerce is more embedded into our lives than it has ever been before and that is irreversible.” John Copeland, Adobe VP of marketing and customer insights.
For example, we have a friend, Sara, who owns a yoga studio, and her audience consists of baby boomers and senior citizens, rather than the Gen Z and Millennial audience found at so many other studios. Though that niche clientele has served her well for 20 years in business, she has been struggling during Covid with her audience for the first time because baby boomers aren’t as comfortable with technology…and right now, that’s often the only way for studios such as hers to offer classes.
So, Sara knows her clientele and until recently, has successfully tapped into it. But what should she do to combat the dropoff due to Boomers’ tech woes? Sara either has to teach her older clients how to get online or find different clients. As harsh as that may seem, she doesn’t have a choice because, as McKinsey has reported, digital adoption has accelerated five years during COVID and we’re simply never returning to the old ways of doing things.
So what can Sara do to retain the base of clients she has nurtured so successfully over the years? She could pay her youngest instructors to conduct private tech tutorials with her older clients to show them how to get online – the long-term ROI is nearly limitless with that small investment.
And when it comes to a competitive analysis, we can again look at Sara’s business. If you know that your audience is only baby boomers/senior citizens then your competitors ostensibly serve the same audience; so you’re probably not as concerned about Peloton, Nike Run Club, and Aaptiv, or, for that matter, Soul Cycle or Barry’s Bootcamp. You’re probably more concerned about the YMCA, the JCC, Silver Sneakers programs and other programs that target older adults as your direct competitors, so look at what they’re offering and how they’re pricing it as a guidepost.
VARIABLES TO CONSIDER WHEN ESTABLISHING YOUR PRICING
Positioning in the Marketplace: Identify Your Customer Base
First, look at your positioning in the marketplace, and whether you consider your business to be premium, middle market, or an affordable brand for a mass audience. In other words, are you a private jet, first class, or coach class on Frontier Airline with no assigned seating?
This question helps you to understand intrinsically where (and who) you are, and who you will appeal to as a client base when it comes to not only pricing, but other aspects of your branding and messaging.
Location, Location, Location: Who Are Your Competitors?
Location – i.e., how far away your competitors are from your own studio as well as whether you’re comparing yourself to other small brands in your local community or national brands like SoulCycle, CycleBar, etc. – is another important variable in determining your pricing.
The question you should be asking with location is: am I looking at competition across the street, on my block, two blocks away, the other side of town, and/or especially now in this new world, virtually?
Are you only comparing yourself to brick and mortar studios that offer virtual? Or are you comparing yourself to online-only studios (or any provider of the fitness modality you offer)? There are different cost structures associated with each – if you’re a brick and mortar location that’s trying to compete with digital-only companies in your pricing when you’re still paying rent and property insurance and they’re not, that doesn’t seem like a reasonable competitor for you.
So if your competitor is virtual-only and charging $9.95 per month for unlimited classes, and you can’t charge $9.95 and run a profit, what do you do? How do you adjust your pricing accordingly and communicate that appropriately to your target clients?
Capacity limits and governmental strictures due to Covid-19
Another question you have to answer when it comes to pricing is what environment are you working in based upon your local government’s regulations around Covid-19?
That’s a capacity question at its core. If your capacity is limited, it’s difficult to offer, for example, an unlimited in-person membership. Therefore, what some studios are doing is offering unlimited hybrid memberships that include a specific number of in-person classes a month and unlimited virtual (livestream or on demand) classes. This allows businesses to be able to accommodate and continue to serve their entire community.
Bottom line, virtual fitness is completely different from in-person pricing models.
So if your studio features bodyweight training (rather than large equipment like Megaformers, bikes, or rowing machines), you probably shifted online much quicker and have had more success faster – and that means you probably have a more robust virtual training program with an accompanying lower virtual-only price point.
A Competitive Analysis
Look at some different factors and variables, consider your position in the marketplace, and look at what your competitors in those realm(s) charge and then determine where you want to be in comparison to that.
A competitive analysis gives you a sense of the landscape – it’s helpful for a baseline, and then ultimately you will also want to factor in something a little less tangible: values-based pricing. If you feel like you offer that much more, that “something extra,” you can go higher-end. If people love you and aren’t going anywhere else, your pricing can be higher.
As we’ve been saying all along, pricing is not “one size fits all”: it’s a business decision, and a choice.