How to Set (and Get) the Right Prices - Part III
The Worst Pricing Decision You Can Make
When you think (or hear someone in your business say) “We need the work. For now, we’ll set our prices really low. Then, as we get more business, we’ll raise our prices”, alarm bells should go off. This is one of the worst marketing mistakes you can make. Why? Because you’ll struggle from the outset just to cover your costs. And, even if you do have some profit left over, you’ll resent working so hard for such a little payoff.
You’ll also position your company as lower in quality versus most of your competitors (whether or not it is true). Avoid this situation at all costs and price your service right the first time.
Why It’s Better To Err On The Side Of Higher Pricing
If you have two price points you are considering, but are unsure which is right, choose the higher one. This will position you as higher quality and will ensure adequate profitability from the get-go. And should you meet resistance at this price, you can discount down to an acceptable price (see below). The alternative is choosing a too-low price which leaves no room for negotiation…or profit.
The Second Worst Pricing Decision You Can Make
Have you ever heard a sales rep say something like “OK, if I lower my price to $15/widget, will you buy?” The problem with discounting your price like this is that it communicates your price is over- inflated. And if the buyer perceives this, she will feel compelled to negotiate until she finds out what your true price is.
Instead, it’s much better to couple any price discounts with an equal reduction in services or product offered. So for example, you might say “OK, I can reduce my price to $15/widget by reducing our 5 year warranty to 3 years.” This way, you’ve shown flexibility in meeting the needs of your buyer, yet have maintained your pricing integrity.
Commit Your Pricing Strategy To Paper
Once you’ve finalized your pricing strategies, write them down. This commits you to a plan of attack, and gives you something to go back to when you plan again next year. It should look something like this:
Pricing strategy: We will premium price our products in the top third of our market.
We will do this because it (rationale):
Remember…Sure, pricing is a financial matter. But just as important, it’s a marketing matter that impacts your positioning, your selling abilities and your brand. Follow the steps outlined above and you’ll ensure you set—and get—the right prices.
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About the Author
Jay B. Lipe is the author of The Marketing Toolkit for Growing Businesses, a guide for any small business wanting to get its marketing house in order. He is also the CEO of Emerge Marketing, a firm devoted to helping small business owners improve their marketing. He can be reached at lipe@emergemarketing.comor through Emerge Marketing.
When you think (or hear someone in your business say) “We need the work. For now, we’ll set our prices really low. Then, as we get more business, we’ll raise our prices”, alarm bells should go off. This is one of the worst marketing mistakes you can make. Why? Because you’ll struggle from the outset just to cover your costs. And, even if you do have some profit left over, you’ll resent working so hard for such a little payoff.
You’ll also position your company as lower in quality versus most of your competitors (whether or not it is true). Avoid this situation at all costs and price your service right the first time.
Why It’s Better To Err On The Side Of Higher Pricing
If you have two price points you are considering, but are unsure which is right, choose the higher one. This will position you as higher quality and will ensure adequate profitability from the get-go. And should you meet resistance at this price, you can discount down to an acceptable price (see below). The alternative is choosing a too-low price which leaves no room for negotiation…or profit.
The Second Worst Pricing Decision You Can Make
Have you ever heard a sales rep say something like “OK, if I lower my price to $15/widget, will you buy?” The problem with discounting your price like this is that it communicates your price is over- inflated. And if the buyer perceives this, she will feel compelled to negotiate until she finds out what your true price is.
Instead, it’s much better to couple any price discounts with an equal reduction in services or product offered. So for example, you might say “OK, I can reduce my price to $15/widget by reducing our 5 year warranty to 3 years.” This way, you’ve shown flexibility in meeting the needs of your buyer, yet have maintained your pricing integrity.
Commit Your Pricing Strategy To Paper
Once you’ve finalized your pricing strategies, write them down. This commits you to a plan of attack, and gives you something to go back to when you plan again next year. It should look something like this:
Pricing strategy: We will premium price our products in the top third of our market.
We will do this because it (rationale):
- Positions us as higher quality than our competition.
- Further justifies our additional services.
- Ensures adequate margins now and in the future.
Remember…Sure, pricing is a financial matter. But just as important, it’s a marketing matter that impacts your positioning, your selling abilities and your brand. Follow the steps outlined above and you’ll ensure you set—and get—the right prices.
-----------------------------------------------------------
About the Author
Jay B. Lipe is the author of The Marketing Toolkit for Growing Businesses, a guide for any small business wanting to get its marketing house in order. He is also the CEO of Emerge Marketing, a firm devoted to helping small business owners improve their marketing. He can be reached at lipe@emergemarketing.comor through Emerge Marketing.
