Too high? Too low? How do you really know whether your pricing strategy is just right? Is it possible that your sales can be cooking along fine—but in fact, you’re leaving revenue on the table OR slowly driving customers away with a short-term pricing strategy that has set your prices too high?
Small business consultant, coach and speaker Andy Birol has written about this very thing in How to Tell if Your Pricing is Right on smallbiztrends.com. Birol refers to pricing as “one of the greatest games in business”—a truism that’s even more true in lean times. What’s in a price, besides just bringing the revenue you need? In addition to covering the costs of sales, distribution and collections, your prices must also reflect value and convey trust.
Birol describes three scenarios that indicate whether you’ve priced your products and services correctly.
- When hearing or seeing the price, the prospect immediately walks away.
He believes your prices are too high and doesn’t even stop to ponder them. - When hearing or seeing the price, the prospect immediately agrees to it and may seem a little too eager, happy—even celebratory—about it.
He believes your prices are too low and that he got away with a real bargain. - When hearing or seeing the price, the prospect takes some time to think about it but ultimately agrees.
In this case, he has decided that there’s real value here and that he’d be losing out if he walked away.
At the end of the day, Birol says, pricing is about the value exchange.
So what if you’ve done a thorough analysis of your pricing strategy and determine that your bottom line requires some pricing changes? How do you raise or lower your prices without alienating your customers?
As you might imagine, changing your prices is not as important as how you implement the changes—and the timing of when the changes go into effect. Can you predict, with reasonable accuracy, what your competitors will do next? And can you change your prices in such a way that you correctly
influence your customers’ perceptions about the value of the products and services you’re selling?
Yes. And yes, says How to Raise and Lower Your Prices on entrepreneur.com. But there are some general rules of thumb. First, remember that pricing doesn’t exist in a vacuum. You can change the price without changing the value. Discount something, and you’ll generate sales. But raise the price on the same item, and you’ll have customers walking.
Or, many businesses change value without changing the price. How annoying is it to pay higher prices on the same item—or one that is shrinking in size? And above all, you want to avoid unnecessary complications and confusion by changing value and price at the same time.
Before you start tinkering with your pricing, be sure to read the entire article here.
Image courtesy of emptyglass / FreeDigitalPhotos.net