If you own a small business, you know the challenges that pricing can bring. Too many small business owners are racing each other to the bottom with the continuous quest to have the lowest prices in their niche. Read on to find out why this is a poisonous practice for your business and what you can do to change things around.
When you try to keep your prices down, or you try to beat your competition on price, you are essentially running your business right in the ground. Deep discounting is not a sustainable business model, because there will always be someone else that can do it cheaper than you can. This low price myth also creates a commodity out of your product, where you train your customers that your business or product has nothing to offer except a low price.
Instead, you need to focus on value. Adding value to a higher priced product is a surefire way to maintain a high level of profit, while keeping your customers at the same time. 80% of your customers are not price buyers. These are people that want service and to be treated like human beings instead of a number. If you focus on the price buyers only, your worst customers, then you are leaving 80% of your customers out in the cold.
The price buyer is your absolute worst customer. These people take up most of your time, return the most of your products, and provide you with the least amount of profit in the end. By increasing your prices, you can get rid of some of these terrible customers and maintain a great value-driven relationship with your best customers at the same time.
It’s all about positioning. When you position your business in such a way that you can show people their overall costs are going to be lower by doing business with you, since you provide so much value, then they will stay loyal even if you have higher prices. Of course you need to make sure that you are charging prices that your market can bear, but that will be a very wide range in most cases. When testing your prices, make sure that you are working from the top down. Start with a very inflated price and slowly remove. When you work from the bottom up, it will be much harder to get people to pay more after they saw a sticker price that was lower a week ago.
It is important to test price often, however. You want to charge as much as you possibly can for the product or service that you offer. When you don’t test, many times you find out too late that you have been leaving a ton of money on the table.
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