subject: Effective Pricing Strategies For Small Business Success [print this page] The biggest reason small businesses fail to make the profits they aspire to is poor pricing strategies.
What I find the most disappointing and even annoying about this is it's so unnecessary.
In British society it seems we're brainwashed into thinking high-prices are something we ought to apoligise for. For some reason, we've got it into the national psyche asking for money is somewhat vulgar.
I bet you've had a salesman say this to you before: "I'm sorry but it's rather a lot...".
Why apologise for our prices? It's insane. If we really, truly, honestly believe we offer genuine value to the market, then we should NOT be feeling bad about our prices!
How Low Prices Can Destroy Business!
The first thing business owners do to win new business, whether it's because of recession, increased competition, or just a desire to have more people coming through the door, is reduce their prices.
And this is an often fatal and always self-inflicted wound. And the most abysmal of pricing strategies I can imagine.
I cover the maths elsewhere, but on a 35% margin - about average for most businesses in most industries - a price cut of 10% actually means you have to sell around twice the volume to make the same profit.
Trouble is, volume rarely increases at all because not only do your competitors reduce their prices to match yours (so everyone's just working just as hard, only for half the money), but price is almost never what stops people buying.
People Almost Never Buy on Price!
Very few people actually buy on price all the time. Some people might, I'll admit. But they are very few and far between, and the very last people you want as customers and clients.
Don't believe me? Then step outside your door of your house and take a look around you. I bet no one is driving the cheapest car they could possibly get.
And I bet the houses are not the cheapest lean-to's you could build either. Moreover, I bet you don't wear the cheapest shoes or clothes, or eat the cheapest food you can get, either.
Effective premium pricing strategies are predicated on your understanding price is much less important than value. And value is entirely subjective and up to you to convey to your prospect, customer or client.
In truth, you might be surprised to discover the whole idea of "market pricing" is nothing more than a dangerous lie.
How You Know when They Really Want to Buy!
If someone tells you you're "too expensive", it's only because you haven't shown them sufficient value for the price you're asking. Believe me, your client wants to buy, and the price isn't really the problem.
No, the problem is you haven't given them the excuse of seeing sufficient value in your offer for them to rationalise the price with the emotional desire they have for your product or service.
That's why the most effective and profitable pricing strategies are value driven, not price driven. It's also why they focus on the high-end of the market rather than the low end.
It's much easier and more profitable to sell one 10,000 widget than it is to sell a hundred 100 widgets. And that means you can afford to invest the time and effort in showing the value of this 10,000 widget.
Build Instant Value into Your Offers!
They expect three things from your business: they want high quality products and services; they want fantastic service; and they want low price. But that's one of the most suicidal pricing strategies I can imagine.
Because, while I don't know about you I've never met anyone who could offer all three simultaneously. I know I can't. Bet you can't either. If you can, then you ought to apply to the Guinness Book of Records, because you're a superstar.
So, you've got to decide which one of these you're not going to offer your clients. Does it really makes sense to offer them low quality and poor service just so you can claim a low price?
The correct answer to that is "no". Believe me. It's absolutely no good for your business, and it's no good for your clients, either. Ask them, and they'll tell you they want quality and good service, I promise.
by: Jonathan McCulloch
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