Pricing - The Elephant in the Room
Updated: Aug 31, 2019
The more I talk to business owners the more I realise that most of them, regardless of industry sector, are working in the dark when it comes to pricing their product or particularly their service. They seem to adopt a finger in the air and hope for the best approach, or they price themselves just a little bit lower than their nearest competitor in the hopes of attracting business. Well, there is a good chance that that competitor is just as clueless about pricing as they are! There has to be a better way..for me I believe it’s all about pricing based on value delivered, but that value must be demonstrated to the potential customer, don’t assume that they understand everything that you are delivering.
Top 5 Things to Understand About Pricing:
1. Pricing is the single most powerful lever in the Profit Equation – Each business owner has the ability to increase their prices in such a way that the impact is felt almost immediately..The same cannot be said for attempts to reduce costs, where the impact is not as immediate and where there is a limit to what can be achieved.
2. There is a myth around pricing that supports the belief that consumers are Price Sensitive, this is not the case for the vast majority of the population..if it was there would be no market for expensive phones, expensive coffees or bottled waters! Consumers are actually Value Sensitive..they are willing to part with their hard-earned cash if they can see the value of a product or service to them at a particular point in time.
3. Customers buy benefits, not features..It is up to each business owner to demonstrate the value of their product or service by illustrating the benefits available to the customer..This is all about the customer, and what you as a business owner can do for them.
4. Customers like two things when it comes to price (most applicable to the provision of services)…Choice and Certainty..Offer potential customers 3 options (known as Goldilocks Pricing) using terminology such as Starter/Essential/Premium..Statistics show that most customers will pick the middle option. By agreeing a price upfront for services the customer has certainty, and does not have the worry of getting a nasty surprise bill.
5. If you have never been told that your goods or services are too expensive, then it is most likely that you are too cheap..You are leaving money on the table! It may not be nice to hear, but the more you start hearing those words the closer you are getting to valuing your goods or services correctly!
In conclusion I would say that pricing is all about confidence..Confidence is about mindset..You must adopt the mindset of valuing yourself and what you do. If you cannot do that how can you expect anyone else to value what you do?
From a purely accounting point of view, the figures do not lie, no matter how busy you are, if you are not generating a Profit which allows you to have an income which sustains your lifestyle you are a busy fool. I urge you to pull the Pricing lever to accelerate your business success now!
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