During my holiday shopping last week, I couldn’t believe all the deals retailers were offering to entice me to shop at their stores. From rock bottom prices on certain products, to free shipping and handling on internet orders, to discount coupons if I bought an item within a specified period of time. It was quite amazing, but at the same time puzzling.
Do you ever wonder what makes the few short weeks between Thanksgiving and Christmas the “end all and be all” for some of the biggest savings in the retail world? Wouldn’t it be great for these same retailers to offer some of the same great savings all year-round instead of merely during the holiday season? Sure it would.
Unfortunately though, we all know this is not the case. Instead, the “pricing wars” start … retailers try to beat out their fellow competition for your business. Pricing becomes king.
As a business owner, pricing is one of the most important business decisions you will make. The price you charge for your product or service can literally “make or break” you. For instance, setting a price that is too high without justification may limit your business growth with reduced sales, while setting a price too low may have a perceived value that your product or service is not worth it.
So, how do you determine what your pricing strategy should be? Let’s look at three steps you can use to help you decide what to charge your customers.
Step 1: Be Competitive In The Market
When deciding on what price to charge for your products or services, you need to know what your competition is charging. If not, you can easily price yourself out of the market. A simple way to find this out is to phone your rivals and ask them for a quote. With this information in hand, you are able to determine whether your prices are comparable and what your customers will accept.
You also need to differentiate yourself from your competitors from the customer’s perspective. Look at what strengths and weaknesses you have compared to your competitors and build upon them. For instance, if your competitors have poor quality of service, then make sure yours is better.
A perfect example of this is if your competitors are bad at answering the phones, whereas you always answer your phone, you win. Customers want a good value for a fair price.
Don’t get me wrong. There may be times where you can justify charging more for your product or service when the value that you offer is far better than your competition. It is a delicate balance between price versus value. But the key point here is that you know your competition so that you can make sure to offer the same or better services.
Step 2: Add Value For Your Customer
There is no way to survive in today’s economy if you are just like everybody else. It is more important than ever before to find ways to add additional value for your customers, or you will be forced to play the pricing wars game where the lowest price always wins.
If you set your pricing too high, customers may perceive your products or services as being of the highest quality. This may encourage them to buy from you, or it may also deter them, depending upon whether they are a value shopper or a quality shopper.
The same is true of the contrary. If you set your pricing too low, customers may perceive that your products or services are not of good quality. The fine line between price versus value is really determined by how strong your unique selling proposition is, which Denise discussed in the last issue.
If your USP is strong enough, then people won’t mind paying more money to you because of the added value you provide them. But if your product or service is the same as your competition, then your customer will make their decision based solely upon the price.
Once you understand what your products or services are worth to your customers, you can determine what the costs are to be profitable and to sustain.
Step 3: Be Profitable To Sustain
When setting your prices, make sure that the price and sales levels you set will allow your business to be profitable. If you cannot make a profit, then you will not be in business for long. You simply cannot sustain. So, take an inventory of your products or services to see how your pricing balances out across your entire product or service line.
For example, you may have a product that is a loss leader that makes little or no profit. In this case use this product to attract customers by giving it away for free when your customer purchases another higher priced product from you. Since the product does not generate much revenue for you, you are not out much money. In fact, you just increased your revenue by attaining a new customer who is buying a higher priced product from you.
Being profitable means you need to be mindful of the differences between cost, price and value, as they are not the same. Let’s look at these terms closer:
- Cost is the amount you spend to produce your product or service
- Price is the financial gain you get for providing your product or service
- Value is what your customer thinks or perceives the product or service is worth
Winning the pricing war is no small battle. However, being fully armed with the right pricing strategy will enable you to succeed.
To learn other ways to increase your revenue, then make sure you sign up for the special Business Mastery Training webinar.
For other business strategies on how to grow your business, then check out a free business startup and growth training program. If you haven’t signed up for that free course yet, I highly recommend you check it out too.
*Originally published as Issue # 50 – December 9, 2011