Every business owner experiences a slump in sales. Sometimes it happens in a short spurt and other times it can last a season and you may be worried that your business will not recover. One strategy that seems to be common across all industries is to have a sale. Lower your prices and then people will start buying again. This method can work for the short-term and when you want to move inventory or need some cash flow, but you should not rely on discounts alone to drive your long-term sales.
Pricing is psychological. Nothing has a fixed value except in the perception of the seller and the consumer. Before you discount your services or products, you should ask yourself these three critical questions to make sure you are clear on your pricing strategy.
1. Who is my ideal customer?
For many years I lowered or raised my pricing based on the feedback I received from customers. If I received too many complaints that our prices were too high, I would reduce the price to make it “reasonable” for everyone. I treated all of my prospects equal and did not separate them from ideal customer to non-ideal customer.
You need to identify who your ideal customer is and what they would want in your product or service. If you are a mass market product, it may make sense to have lower prices for high volume. If your goal is to draw in high income customers, such as niche market or boutique offering, then you don’t want to offer basement pricing. Your perceived value will be low-end which is not appealing to high income customers.
Instead of changing pricing, focus on marketing to your target audience and create the perceived value that will drive them to buy from you.
2. Am I pricing my services based on my competition?
The biggest mistake I made when determining pricing was to compare myself to the competition. I would watch what others were charging and then think that is what was “reasonable” rate for our company. The problem with this is back to question number one, they were targeting a different ideal client.
While your services or products may fall into the same industry, remember that each industry has different markets. You can go to a drugstore and buy a store brand of shampoo for $3-5 or you can go to your salon and get a higher quality shampoo for $30-50.
Keep in mind, a different type of customer will have different value expectations. A low-end customer values saving money and a high-end customer values quality and is willing invest in it.
3. Instead of reducing the price, how can I add a higher perceived value on my service or product?
When I get a pedicure at a cheaper nail salon, the service is mediocre. They charge $25 but are loud and you feel like you are on an assembly line in a factory. When I went to a spa to get the same pedicure, they had me in a quiet private room with soothing meditative music, warm towels, longer foot massage and I felt like a princess. The spa pedicure cost $45, almost double the price. Some people would choose the low-end, while I personally would pay extra for the nurturing experience.
There are many ways to keep or increase your pricing if you add more value. Think of other add-ons you can bring to the product or service that are low-cost to you but have a high-perceived value for your customer. One example you can try are personal phone calls or emails or thank you letters from you or someone on your team after the service or purchase to check in with the customer. Think of a product that compliments the service or product that can be packaged in with the purchase. You can also change up how you deliver the service or product, nicer packaging or customization.
4. How can my bottom line grow if I increased my prices?
This is the million-dollar question — literally. Asking this question can dramatically change your business. If you offered a service for $100, you would have to find 10 people to make $500. If you offered that same service but with some added value for $500, you would only need 1 customer to make the same amount of revenue. Less volume, higher revenue and the customers will get better, more attentive service.
One thing I learned over the years is that it is actually easier to sell a higher value product or service than a lower value one. If you think of the psychology of a bargain hunter, they are always looking for deals and do not care about value. They will question your $100 service and probably be unhappy with it.
A high-value customer feels good about investing at a higher level. They want to best service, not the cheapest service. With some exceptions, these customers are easier to work with, appreciate the service more and are more loyal than the bargain hunters always looking for the next deal.
While it may feel safer and more comfortable to lower prices, to grow as a business owner and a company you should consider raising your prices. Price increases will have a great psychological impact on your confidence and the value you provide to your customer. You will drive more revenue with less effort, serve the right people and be much happier.