Let’s set the stage.
You are finally meeting with a prospect you have pursued for weeks. After a little small talk, you turn to the business at hand.
“Thank you for your time today,” you say. “I’d like to go over the proposal first, and then I’ll be glad to answer your questions.”
You start strong, making smooth transitions from one point to the next. Your voice is calm and paced.
Just like you practiced.
Your prospect nods as you move through each part of the presentation. So far, so good.
Your confidence soars as you near the end. All those hours invested in research and preparation appear to be paying off.
Now, for the close. You look your prospect square in the eye. “So, are you ready to move forward?”
Just like you practiced.
That is when it happens.
“Well,” she says, “I spoke with one of your competitors, and they’re offering to do the same work for much less. In fact, about fifteen percent less.”
Your mind races. Even though you knew the project’s price would come up in the conversation, you still aren’t sure what to say. The confidence you had only moments ago has vanished.
As you search for the words to respond, this comes to mind:
I really want the business, so I’ll come down on the price. Besides, getting less than I wanted is better than nothing.
So much for practice.
How Much Is Your Product or Service Worth?
Want the truth? It depends on who you ask.
Most business owners would like to charge more, but their customers want to pay less. This makes pricing stressful.
Charge too much, and you might end up with an uncomfortable amount of free time. On the other hand, don’t charge enough, and your business could become an expensive hobby.
To make matters worse, few can agree on what is “just right”.
In some industries, prices fluctuate dramatically, making it even tougher to set rates. This is especially true for service providers who don’t have material costs.
As an example, a friend of mine is an electrician. He charges $75 an hour. But one of his competitors won’t bother to come out to your house for less than $125 an hour.
Yet both have plenty of customers.
So, how is it possible that one can charge much more than their competitor and still be successful?
I wrote a post about how branding creates more perceived value for your product or service. I stated that the more value customers think you offer, the more you can charge.
This post goes into more detail. When you finish it, you will understand the psychology of pricing and how to use it to your advantage.
What You Need to Know About Price Positioning
Generating higher profit often comes down to the correct price positioning.
The concept is simple. How people view your prices compared to competitors determines your position.
Let’s say you charge $100 for a widget. Now, suppose Competitor A charges $90 and Competitor B charges $85. This being the case, your target market will view your business as one with a premium price positioning.
At first glance, your widget appears expensive. However, you may also reason that Competitors A and B will sell more widgets because they are cheaper. So, considering all this, let’s say you lower your price to $80.
But what if a new competitor enters the market and charges $75? And what if competitors A and B respond by lowering their prices too? You may end up in the same situation you were in before but making less per widget.
Around and around, it goes.
Herein lies the problem. If you are allowing competitors to dictate prices, you will be changing them every day. And you can’t run a business that way, much less make a profit.
Instead of guessing or reacting to competitors, we can use price positioning to help. This is an actual process that empowers us to overcome the challenges of pricing.
But you may wonder: do we really have that much control over how much we can charge?
The answer may be simpler than you think.
Does Price Matter?
I will start by saying that price does matter. Almost everyone focuses on how much things cost. It is naive to ignore this as you try to determine what to charge.
But the price of a product or service is not the primary buying factor for most people—whether they are aware of it or not.
Spending most of your time selling on price is a shortcut to burnout. And if most of your customers are price shoppers, you will have a tough time staying in business.
Some people pride themselves on “getting a deal”. Others don’t know enough about what you do to make educated comparisons. Or maybe they made a poor decision in the past and have sworn not to make another one, even at the expense of missing out.
It doesn’t matter what their reasoning is. These people will be tough to sell. In their view, you are no different than anyone else that does what you do; you are only trying to charge them more for it.
It may seem impossible, but it is best to avoid these folks at all costs (literally!). You will spend too much time and energy trying to convince them that what you do is worth the price. Eventually, these conversations will suck the life out of you.
Quality or Quantity?
Using simple math, you know that the less profit you make, the more customers you must get. Yet, I’m still surprised when I hear a business owner tell me they haven’t given this much thought.
If your goal is to make $100,000 and you profit $2,000 from each client, you will need 50 clients to hit your goal. However, by cutting your price in half (to $1,000), you will need 100 clients to hit the same goal.
But if you are struggling to get clients while charging $2,000, do you really think you will double the number of clients you get by cutting prices in half?
Still, many business owners think they can make it up somewhere, somehow.
Even if you do, you must do twice the work for the same money.
It is also interesting that price is an indicator of quality. If something costs more, we expect it to have higher quality, thereby providing more value. As we have learned, the more value something appears to offer, the more people will pay for it.
Doing more work for the same (or less) money forces businesses to compromise on quality. It is unlikely that you can deliver the same value for less money.
The irony is quality supports the case for charging higher prices. It is the one thing you can’t afford to sacrifice.
Price Positioning and Your Brand Identity
Did you know your brand identity can help you command higher prices?
Many small business owners think branding is something for large corporations with limitless marketing budgets. But did you know your brand can help you make more sales?
Branding is a process that allows you to develop an identity for your business. That identity reinforces the perception you want people to have of it and supports premium price positioning.
I will use an example to illustrate the point. Think of two salons. One calls itself a “hair and nail salon” and offers 20% off on the first visit.
The second is a “luxury” salon that delivers a unique brand experience.
Two completely different approaches will likely attract two uniquely different audiences.
This comparison is one small example of price positioning. Of course, wording alone isn’t enough. But to charge higher prices, it is imperative to set the tone in the customer’s mind.
Building more value is another component of a price positioning strategy. To do this, you must be creative.
Can you add extra services and package them with the products you sell? For example, can you offer memberships or clubs?
Creating content that educates customers on what you do is an excellent way to build value. You become an authority as you teach them more about your products and services.
The list goes on. There is almost no limit to what you can do to build more value for your business.
One of the most powerful strategies is to think of how you can do the impossible. What is one thing most people in your industry don’t believe can be done? Can you figure out a way to do it?
For instance, can you offer a money-back guarantee? This can be a compelling reason to buy in service industries because most service businesses aren’t willing to do it.
What bold steps can you take to grab your audience’s attention and validate higher prices?
Price positioning can help you increase profit. It can also improve the quality of the customers you work with and help you build a thriving business.
It takes some time, planning, and effort to build premium price positioning.
Do you need help? Email me personally at email@example.com or contact us by clicking this link.
Until next time,
More Branding Insights
By Chris Fulmer |
Learn more about brand strategy.
Are you struggling to connect with your audience? Do you want to show them how you're different from competitors?