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Do You Get What You Pay For?

In Robert Cialdini’s book “Influence: The Psychology of Persuasion” he talks about a friend who had a jewellery store in Arizona.

She was having trouble selling some turquoise jewellery.  Finally she decided she had to clear the stock and left a note to her staff to mark everything down to ½ price.

When she returned after a business trip she was delighted to see that all the jewellery had been sold.  She was shocked, though, to discover that, because the employee had read the ½ as a 2, the entire collection had been sold at twice the original price!

At first it seems incredible that increasing the price actually increased sales.  However if you look at the psychology behind it, it follows our natural inclination to believe “you get what you pay for”.

In this case, her customers, mostly well-off holiday makers were using a standard principle “expensive = good”.  So the customers who wanted “good” jewellery, saw the turquoise pieces as more valuable and desirable when they were twice the price.

Price alone indicated quality and a dramatic increase in price led to a dramatic increase in sales.

Most business owners believe that lower prices will mean more sales.

However this is not always true.

Think about some of our leading brands – Pampers, Coca-Cola and Fairy Liquid for example. They’re all market leaders in their sectors and they’re all more expensive than other brands.

Are you selling your stuff too cheaply?

The problem with under pricing is that you have no margin to provide exceptional customer service and you cannot market your products effectively because there is not enough profit in every transaction.

In a small business you can’t compete with the big boys on price – you simply do not have their buying power.  You have to differentiate yourself some other way – and you have to charge a premium price for it.

At the same time you have to deliver amazing value – you want your customers to love you.

The biggest problem is overcoming that voice in your head saying “I can’t possibly charge more”.  Why not?  Who says?  Have you tested higher prices?  What extra value can you offer to offset a higher price?

How do you know what to charge in the first place?

Do you look at your costs and add on your margin?

Do you look at what your competitors charge and charge approximately the same?

Do you look at your most expensive competitor and your cheapest competitor and charge somewhere in between?

Or do you actually test different prices to find out which is the most profitable?

Invariably I recommend that my clients increase their prices and at the same time tell their customers why they are different and why they should do business with them.

At the most basic level if you put up your prices by 5% you will probably add 10% – 12% to your bottom line. Will such a small price increase really lead to you losing 10% of your customers? My experience tells me that you’ll probably lose 1 or 2 at the very most.

Yes I have heard lots of reasons why you can’t charge more – especially today.  You may even be surprised that I am talking about increasing prices given the current economic climate.

However today more than ever it is vital that you charge a fair price – and use the extra profit to deliver exceptional value – because selling too cheap will harm your business.  Try it – test different prices on certain items – you may be pleasantly surprised.

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Premium Products and Why Your Business Should Have Them

In my business I’mcontinually looking for ways my customers can increase their profits. Remember turnover is great but it’s the amount of profit you make that’s really important.

So if you can make more money for the same amount of effort that’s got to be good right?

So how are you going to do this?

The answer is by selling premium products.

While most people are convinced that everyone wants the cheapest option, the fact is there are always people who will pay a premium for perceived better service or quality.

The car industry has to be a prime example of this. In essence all cars will get you from A to B. The difference is that some will get you there faster, in more luxury and in more style and there are plenty of people who instead of paying £10,000 for the privilege are happy to pay £20,000, £40,000 or whatever a Rolls Royce costs.

Now the reasons why someone will pay £150,000 for a car are far more complicated than just wanting to get from A to B but the point is there is a market for these premium products.

I saw a more achievable example recently. I was at a Beyonce gig at Twickenham where the majority of the tickets cost £65. However there was an area right at the front where the tickets cost about twice that figure.

We all got to see the concert, but some people paid the extra to have the best view.

Another premium product that we’re all aware of is the no queue option at the theme park. The rides are still the same it’s just that you avoid all that dreadful queuing. The tickets are nearly twice as expensive but the theme park operators don’t have to do any more work except taking more money through the till.

Just think how often if you’re given 3 different options, in effect the gold, silver and bronze options, how often do you choose the bronze option? Most of us will go for the middle option while some will go the whole hog and buy the gold option.

Now the question is how can you capitalise on this desire for higher quality especially if you’re in a service business?

The answer is to create packages.

You take your basic service and market that as your no frills basic bronze option. From there you simply add on extras:

  • 24 hour availability
  • Email support
  • Access to specific educational resources
  • Monthly updates
  • Telephone support
  • One to one time

The options are only limited by your creative ability. However you do have to ensure that your higher priced packages are offering significantly greater value and benefits to the customer.

The principal is really simple and it just needs an amount of creative thinking and a change of mindset, away from this is the way I’ve always done it to a new way of thinking.

So how can you create premium products in your business?

 

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Pricing Strategies For Successful Businesses

What to charge for your services and products is one of the biggest issues that business owners face.

The standard response is to under-price in order to beat or be cheaper than the competition.

Your pricing is vital

The fear of losing customers – being judged as too expensive often stops businesses from charging what they should for their products and services.

Charging too little can and does cause businesses to go under.

Often I hear business owners say things like, “I can’t charge more than I already am” or “ if I put up my prices I’ll lose customers“. There’s no doubt that the internet has caused price deflation. It’s so easy and quick to compare prices on line and internet sellers always have an overheads advantage over traditional retailers operating from a bricks and mortar premises.

But when you look around, chances are you will find someone charging more than you are who is obviously thriving.

When it comes to setting your price, there are some simple do’s and don’ts you should always follow.

Don’t lower your price to win a bid.

The price you operate at currently is the price you’ve calculated that will generate the profit you want and need from your business. If you start cutting your prices to win a bid you will always be operating at a margin you’re not really happy with. And what happens when something goes wrong? You won’t have the margin available to put things right.

Understand the impact of promotional pricing

While I’ve said above that you shouldn’t cut your prices to win a contract, that doesn’t mean that you shouldn’t offer promotional deals to win new business. I always encourage clients to offer special offers to win new customers and that they shouldn’t worry about margin on the first transaction. After winning the customer via the special offer, you have the opportunity to build the relationship and add value to the customer so that when your prices go back to normal he is no longer making his purchasing decisions based on price.

However if you intend to offer deep discount pricing on an on going basis, you need to be aware of the impact of discounts on margin and how much more you have to sell to stand still.

As a rule of thumb if you cut your prices by 10% you will have to sell over 30% more to make the same profit.

Do test out different prices and price strategies.

Instead of picking a random price, you must be aware of what comparable products are selling for but remember it isn’t always the cheapest product that generates the largest number of sales or the most profit.

In certain markets customers will equate price with quality. “Reassuringly expensive” sums it up. This gives you the opportunity to raise your prices and potentially increase your sales at the same time.

You should take the opportunity to test out a number of pricing levels and find out which one generates the most profit.

No matter what you do, you must consider your pricing strategy very carefully in order to not only increase your profit but help you stay in business for the long haul.  Don’t be afraid to try out different pricing strategies. Raising your prices just 5% will have a huge impact on your bottom line.