Pricing – What Does it Communicate About Your Business?

April 27, 2009 by  Filed under: Marketing 

You could have a hundred marketing strategies lined up for the coming year, but if you apply them to the wrong pricing model you could end up very disappointed. You might still do OK but it’s unlikely the result will be brilliant.

There are three elements to consider when deciding on a pricing strategy:

1. Don’t fear pricing – One of the worse things you can do when a customer queries a price is to start backing down or apologising for it. Once you have decided on a price, being strong to stand by that decision will communicate confidence in your product or service.

Beware employees who believe your prices are too expensive. Their attitude will definitely influence your customers. Some may even say such things like “I know it’s a bit expensive, but…” This is an absolute no, no! Usually, some simple training in presentation and why they should be proud of your prices is all that’s needed to put this right.

When you and your employees take a pride in your pricing structure and start believing it’s well deserved, it will start to influence your customers in all sorts of ways. Prospects will be attracted to that kind of certainty. Customers will be satisfied that they are getting real value for money.

2. Look beyond a customer’s price query – When a customer tells you a product or service is too expensive, don’t believe it. Even if they do think the price is a bit high, it is more likely than not that there is another reason why they aren’t buying.

Much research has gone into this subject and shows that price is often used as an excuse to get out of making a purchase, when really it is more likely that the customer simply hasn’t understood the offer. If this happens you need to consider that you may not have explained what it is you’re selling well enough.

We know from consumers’ past buying history that affordability, and therefore price, isn’t the biggest influencer when it comes to buying decisions. The huge credit card industry stands testimony to the certainty that people will buy what they cannot afford.

Of course, there is a portion of the market that only buys on price. What portion of your business is influenced by this type of customer will depend on the business you’re in. If 10 – 20% of your customers always want the cheapest available, you have to ask yourself if you really want them as customers. Personally, I’d steer well clear of them.

If you find such customers make up your core business, you need to think about re-structuring right away. These types of customers are always the hardest to deal with and will give you the least profit. You will end up paying them to use your services!

When someone challenges a price you need to go deeper. Have they understood your offer? Have you met their needs? Reinforce the benefits. When someone says no because the price is too high, they usually mean they cannot see the value.

3. Premium Pricing – Selling expensive items to people for whom price is not an issue is one of the keys to entrepreneurial wealth. ┬áThe fashion and motor industries are obvious examples. High end brands will keep their prices deliberately high so that only the wealthy can afford them.

We could break the figures down like this:

10 – 20% buy on price alone.

80 – 85% take price into account, but it’s not the most crucial factor.

5 – 10% want the very best and are willing to pay any price to get it. More than that, they usually make their buying decisions based on what’s the most expensive. They have a belief system that’s grown out of a social conditioning that says – expensive is best.

You are certain to come into contact with this 5 – 10% group at some stage. Are you ready to give them what they want? It is very likely that 5% of your present customer list would be willing to purchase something from you, right now, that’s five times the price of your most expensive item!

Find a way to give your customers a choice. Perhaps you can re-structure your services or product range into Platinum, Gold and Silver or Deluxe, Standard, Economy. 1,000 customers will buy at $100 each, 50 (5% of 1,000) at $500 and 2-3 (5% of 50) at $2,500.

Statistics indicate that you are probably not charging enough for whatever it is you’re selling anyway. Plan to structure your business to move towards that 5 – 10% of the population. Generally, these people are easier to target, better to do business with and will make a greater difference to the success of your business.

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