It’s a common question. Getting your prices right is a tricky business. Too cheap and you won’t make profit, too expensive and you could lose sales. So how do you price your products and services?
The facts about price
I once read that about 5% of people will always buy the most expensive product no matter what because they perceive that the more it costs, the better the quality. That’s why shops like Harrods and Tiffany’s exist.
Around 10% of people always buy the cheapest no matter what because they perceive that buying cheaper means you save money whether the product only lasts a day, an hour, or a minute. Everyone else buys depending on their perception of value.
Being the cheapest
When the only benefit to customers is being the cheapest on the market, you are in a precarious position. There will always be someone who will find a way to be cheaper than you – even if it means losing them money initially. So if you’re going to be the cheapest, you need a back up plan. Or be cheaper, but make sure you’re clear about other benefits that add value.
Cheaper (or, to use marketing spin, more cost effective) products can often lose sales because of the “what’s wrong with it?” factor. A good example of this is laser eye surgery. Prices for having your eyes corrected by laser surgery range from (a rumoured) £200 per eye to £7,000 per eye. Whatever the reason there are a lot of people who would absolutely not pay £200 for someone to poke around with their retina. It just doesn’t seem enough. That doesn’t mean they want to pay top whack, but the perception is that you’re risking your eyesight so you should pay more.
Being the most expensive
Being the most expensive can be a safer option if you’re a good sales person. After all, you can always add on free extras to make what you’re selling even more appealing if you need to. Though you also need to be prepared for times when sales drop (which they most likely will at some point). Good companies have a back up plan for just such occasions which will enable them to either use all those accumulated profits to ramp up their marketing or cut costs to allow them to continue. (The key here being to accumulate profits…)
Your business – your rules
A lot of people forget that in the end, you decide what your prices are going to be. Not your customers, not your competition – you. If you’re comfortable with them then your sales will go up. If you can justify why you’re worth it, you will be.
Assessing your prices
An easy way to judge what price you should be selling at is to first find out what your competition is doing. Find out the lowest and the highest prices out there. Then find out what those companies are giving their customers – what their service (as in customer service) is like, what added extras they’re giving and what the quality of their product or service is like. Some might be difficult to find out, others just mean taking a look at their website.
Then use the charts below to score the lowest price company, the highest and you…
Here’s an example…
The laser eye treatment companies are a pretty good way to show you what we’re talking about. The more expensive companies trade on the fact that they say your eyesight will be better than 20/20. If your lowest price competitor is offering laser eye treatment for £200, you’ve heard some bad things about their service, they offer a free consultation and say that eyesight will be about 20/20, their chart might look like Competitor #1’s.
If your highest price competitor charges £7000, but they have posh offices, highly paid staff, but some people feel their service is a bit ‘pushy’, they offer guarantees, free consultations before, during and after, free aftercare, and the quality of the equipment, the standard of sight will be well above 20/20 their chart might look like Competitor #2’s.
If your price is £3,500, but your service is exactly the same as Competitor #2’s, may be you’re not offering lots of freebie added extras like they do, but the quality of sight again will be above 20/20, then your chart might look like the example below. If that’s the case, you might find that by adding in a few added extras that your customers are going to value, combined with your excellent service, you can justify charging more…
A bit of market research and you might be able to find good ways of raising your prices and therefore making more profit. It’s a good idea to leave room for manoeuvre so that you can change the price should something happen to force your sales to drop, but be confident once you’ve set your price. Of course people will try to negotiate if they think you will give in. Just be clear in your own mind the reasons for your prices being what they are and then you’ll be able to tell your customers why they can’t live without you.