For many business owners, linking price and product seems natural. Consumers, however, are often willing to break this link and pay more for a product or service, if given sufficient motivation.
Put it this way: If product and price were tightly linked in consumers' minds, companies such as Starbucks Corp. or Rolls Royce Motor Cars would never sell their products over the cheaper generic equivalents on the market. But Starbucks isn't just about coffee and Rolls Royce isn't only about transportation. Instead, these products are about a brand identity that adds to price, but adds little or nothing to intrinsic value.
The point is that the association between your product and the price you've assigned it most likely is not fixed in your consumers' minds the way it might be in yours. Business owners can and should think creatively when it comes to pricing their products and experiment with various price points that are different from what they initially think they can charge.
The sooner you break free of rigid pricing models, the easier it may be for you to sell more to affluent customers and, ultimately, make more money. Here are three ways to charge more for your products or services.
1. Target more affluent customers. Who is buying the product is an important factor when it comes to pricing a product. Different people often buy the same product or service at different prices because of who they are, rather than what the product is. For example, an ambitious mid-level executive might prefer to drink Starbucks coffee at work rather than a coffee from a less-regarded brand. Some people refuse to shop at stores like Walmart even though it likely carries the same brands they purchase elsewhere for considerably more money.
Another factor is life stage. For example, parents often spend more money on their first baby than on their second or third. Price is automatically separated furthest from product if you are selling to them while the couple is pregnant with or raising their first child compared to later children.
2. Become a leader in your field. Who is selling a product or service can makes a big difference to many customers. A seller's reputation, financial stability and leadership position in its market have been made more valuable as competitive assets than they were several years ago. Customers often prefer trendy, talked-about restaurants over others to the extent that the prices at those restaurants, and the prices at other restaurants, are sometimes made irrelevant. In the financial services sector, recent investment and banking fall-outs have caused a number of customers to seek out trustworthy institutions over those that only claim to be able to make the most money.
As a business owner, your goal should be to make your company the go-to authority in your industry or area.
3. Upgrade your venue. The importance of context when it comes to buying can't be underestimated. The difference in price between a face cream sold at a Walgreens Co. store and one sold in the home by Mary Kay, or at a cosmetic counter at higher-end stores such as Saks or Neiman Marcus, or at an exclusive Parisian boutique can be disproportionate to the difference in the product's ingredients. The price is governed by the expectations of the consumer largely based on where they are buying it, the brand and the expertise of the salesperson -- not the product.
Also consider changing presentation. A chiropractor, for instance, relocated from a small, messy office to a well-appointed professional office, and switched his attire from casual to conservative clothes. These two minor changes allowed him to increase his average fee from $2,000 to $5,000, with no change to the end product.
Considering these three aspects can help you separate price from product -- and hopefully make more profits in the process.
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Comments:
Love the considering the market point. Your ideal customer has to be a person who can 1. easily identify the value in what you're offering and 2. easily afford the service. The first part is easy, but for some reason so many people try to race towards the bottom on the second point. The problem is, lower priced services aren't always better, and customers who only buy at lower price points, aren't always the best either. If your product requires someone to take action, and they don't, it's because they either A.) didn't see the value and bought it anyways or B.) Saw the value, but didn't have any significant investment to push them towards action. This is a video I produced that talks about the higher paying customers for a jewelry maker, but the principals are all essentially the same. https://www.youtube.com/watch?v=zZIqyifSoLQ
A client of ours who sells ebooks was recently pulling her hair out because her ebook - which was selling for $17 - was just not converting very well, and she couldn't work out why. She had done quite a lot of split testing on the sales copy, but just couldn't seem to crack it. Finally, she tried lowering the price to $12 - no change. Then down to $7 - which led to a 10% decrease in sales. So she put her price up to $27 - and bingo - about a 10% increase in sales up from the $17 price point. Then, she put it up to $47 - and amazingly, a further 5% increase. This obviously proves just how important testing and measuring your price point is, but it also highlights the fact that there are certain audiences who equate a lower price point with inferior quality product - and won't buy because they think there might be something wrong with the lower priced product.
To assist even further in developing your pricing, there are only three things that any business sells - image, innovation and time savings. We have readily available buyer data that shows exactly what people are willing to pay for each. On large ticket items like a car buyers will pay more than 7 times as much as the lowest priced alternative. On smaller ticket items it's 12 to 13 times as much. Early adopters of innovation pay 3 to 4 times or more what the mass market pays and 12 to 13 times what late adopters pay. The value of time savings for consumers can be measured by the amount they spend on recreation. For business the value of time savings (productivity) lies in the gross margin of the additional sales they can generate without adding staff. I hope this helps.
We tried raising prices and 3 new companies started lowballing just to work. And our business dropped by double digits. The issue we have is have no pricing power, we had to increase prices due to cost increases.
This is a good article, but only the tip of the pricing model. If you know your prices vs. your competition, market share and your loyalty factors, it's not hard to raise prices, up to a point. We recently did a blogpost on this subject. John Heinrich Chief Mentor, American School of Entrepreneurship www.theasoe.com
I guess I'll have to go with item #1. The thing is that there are plenty of 'serial switchers' on the Web - or those customers who are ready to leave you when they see the next new shiny deal on the Web. Tough, but will try my best!
Excellent article. As long as you can demonstrate the value your product offers to the market or as you put it target different customers, then pricing becomes less of an issue. www.bettertenders.com
hi Ted...i am also in the entrainment biz and am thinking about raising my prices but am reluctant to do so because we are booked solid and I don't want to loose business. How is it working for you?
I just raised the price on my entertainment packages due to the high cost of gas and all the travel that I do... Ted
Warren Buffet looks for companies that can raise prices without hurting sales. Also, I thought it worth mentioning that controlling the market is the 4th way. -www.awkwardengineer.com