March 4th, 2014 by Elma Jane
Setting the right price for your products or services can be challenging, particularly given the many outdated ideas and misconceptions surrounding pricing structure. The problem with conventional wisdom is that it’s not always wise to follow. Let’s consider four commonly held ideas about pricing and why they may be standing in the way of increased profit for business.
Price Drives Sales More Than Anything Else (Quantity/Price)
Price is definitely a key component in a customer’s having decision but managers overestimate its importance. A computer error caused prices for online retailer products to be displayed at wholesale rather than retail prices for a weekend. The company expected a huge surge in sales, but increase was only marginal, revealing that the company’s customers were more motivated by other factors, such as customer service and the quality of the products themselves, rather than price.
Managers remember the 10-15% of customers that balked at buying due to price instead of noting that 85-90% of customers did not have a problem with the price.
Price Reign Supreme
Finding the perfect price is not the Holy Grail. Small businesses would do better to treat price as function of the value they provide to customers. The greater the value, the higher the price that can be set. Value represents a customer’s return on spending. The benefits receives for each dollar paid. Customers don’t mind paying more if we get more in return, whether the benefits are real or perceived.
Pricing Structure Always Depends On Your Competition
Small businesses set their prices based on what their competitors are charging, but this approach may end up hurting the company. Instead, try to understand how your customers view your product and your brand. Pricing structure shouldn’t depend on your competitors prices unless you and your competitors offer the same bundle of benefits.
Spread Out Price Increases
People gripe about air travel, but many small businesses might benefit by taking a page out of the airline industry’s dynamic pricing playbook. Don’t treat prices as set in stone. Sell 2014 products and services at 2014 prices. Consumers are less likely to grumble about regular, incremental price adjustments than larger increases spread further apart specially, if they aren’t linked to any visible improvements. You’re also more likely to fall out of sync with market realities if you initiate significant price hikes at multi-year intervals.
If you haven’t raised prices since 2006, you might not be losing money, but you’re still losing margin. Your customers want you to stay in business, and you can’t do that if the times change but your prices don’t.
What are you offering that the competition isn’t? (Yours VS Theirs)
Are your locations or hours more convenient?
Do you offer training or other support?
Is same-day delivery available?
Is your sales staff more knowledgeable?
Marketing isn’t about paying people to buy from you by giving away margins. It’s about creating valuable perceived differences between you and your competition, in the eyes of buyers and charging buyers for those differences. Anything out of the ordinary gives existing and potential customers a reason to drop by or click.
Posted in Best Practices for Merchants, Credit card Processing, Small Business Improvement Tagged with: greater value, losing margin, losing money, online retailer, price, pricing, pricing playbook, pricing structure, products or services, profit for business, retail prices, small businesses
