Low Price Strategies Usually Fail
Everyone wants to know they are charging the right price. (Nobody wants a loss, and we don’t want to “leave money on the table). The right price should fall between your actual cost and the value you offer to customers. Within this range, your prices should be closer to the value of what you're selling. So to price high, add value, then learn to sell value.
Corporate customers often won’t buy from small, unproven businesses even when the price is substantially lower. They want dependability, capability (as in being able to delivery everything that’s promised), and stability (being there when you’re need); and they usually want high touch service. Generally, they are willing to pay accordingly. Many entrepreneurs start with costs to determine pricing, but if customers value your product more than that of your competitors, they will pay more.
Also, high-end customers need high-level benefits and will pay more for those benefits. Your primary focus should be on the value and benefits you offer, and price your services accordingly. Your customers will only pay the higher price if they perceive a real value to what you're selling.
Much of perceived value is derived from your skill at identifying and promoting your differentiation! If you aren’t different from the competition, there’s no reason they need to buy from you – at any price. The reality is: Lower prices won't always mean higher volume. Sometimes a low price can create doubt about your value. Customers often tend to believe “you get what you pay for.”
If you want to be a good businessman, don’t pursue a low cost strategy unless you truly are offering a commodity product that cannot be differentiated at all from the competition. Instead, develop a strategy around differentiating your product from the competition strategy, that’s much better than selling your services too low.
American consumers are used to cheap products but not cheap services, so think about offering unusually exceptional services.
Five Reasons Pricing Low Is A Big Mistake:
1. Competitors can lower their prices, too. If competitors are game, they'll also drop their prices until you (and/or they) are no longer in business.
2. The transparency of the Internet lets consumers check your service rating or reputation. (Yelp, Merchant Circle, Angie’s List, ConsumerSearch.com, epinions.com) and others. One of my clients proudly maintains a very high YELP rating and enjoys high end customers at high-end prices.
3. Mistakenly thinking that by having the lowest price, you will sell more. Maybe, but we've already talked and written about selling more at a lower price, or less at a higher price, and you find a spot in the middle where you'll sell less, at a higher price, and make more.
4. Perception of quality gets lower. A lower price infers that the quality of the service is actually low or that it isn't worth paying the premium price.
5. Customer service suffers. Low profit margin forces you to operate on a low budget; you can't afford to hire the support staff to maintain a high level of customer service. Yes, even discount store shoppers want good service. The problem is they don’t get the same level of service at Walmart, but they usually to at Macy’s.