7 ways to demystify pricing
There’s a lot of myth and mystery surrounding the science of pricing. Is low the way to go? How much attention should you pay to competitors? Will raising prices cost you business? The following tips may help clear up some of these pricing misunderstandings.
- Is it wise to be the low-price leader?
In a word — no. Competing solely on price is inevitably a losing game. After all, you can only go so low before you start going into the red. And customers who shop only by price will leave you the instant they find something cheaper. Before you cut prices, make sure you’re not cutting your profit margin too thin.
- But what if my customers don’t want to pay more?
Price-shoppers will only be loyal until someone undercuts you. You could offer more price-conscious customers a tiered pricing structure with a lower price for a product with fewer bells and whistles, or lower prices for orders placed during off-peak times. Just don’t compromise quality or jeopardize profitability.
- Should I base prices on what my competitors charge?
Sure, it’s a good idea to be aware of what your competitors charge for similar products, but don’t use that as your sole basis for pricing. Your competitors may be going after a different target audience, their product might be of lesser quality or they may base sales on volume rather than profit per unit. Be true to your own goals first when setting your prices.
- Is it better to sneak in a price hike?
Raise prices without notice and be prepared to endure your customers’ wrath. It’s better to explain legitimate reasons for a price increase and inform customers in advance. If they’re already happy with you, they’ll be less likely to jump ship if you give them enough of a heads-up.
- Why not simply base prices on cost?
Because the true cost and value of a product is more than the sum of its parts. Don’t underestimate the cost of promotion, shipping and all the overhead that goes into creating your product. There’s also value in that stellar customer service you work so hard to provide. Take a 360-degree view of what it truly costs to deliver your product. Don’t sell yourself short!
- Should I ask customers to pay for my time?
Think of all the time you spend on your customers. Client meetings, driving to and from customers’ work sites, joining conference calls, billing — it adds up. So add some of the value of your time. You deserve to be compensated.
- Remember: The bottom line is the bottom line.
As a business person, you probably have a closer relationship with your customers than a larger firm, which may make it hard to ask for more money. But the bottom line is you need to make enough profit to keep your business healthy and growing. Arm yourself with realistic numbers and the confidence that your product offers a unique value to your customers.
– Contributed by Kelly Burkart through a partnership with US Bank.
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