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Why Can Some Businesses Get Away With High Prices?

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Tuition and fees for the University of Pennsylvania next year will now exceed $60,000. Shocking? Surprising? No, it’s not. Penn is an Ivy League school and arguably one of the best colleges in the country. Like many other good universities, it is super expensive. You can argue all day about the value of a college education and the cost structure of our academic system, but the fact is that schools such as Penn, despite their high cost, have an enormous number of applications each year from people willing to pay.


Which makes me think of my wife’s friend, who hates her dermatologist. She explains, "She charges too much. And she won’t even see me unless I’ve made my co-payment in advance, can you believe it? Not only that but she’s unfriendly. She hardly talks at all, unless it’s something specifically medical. And she’s disorganized. Her waiting room is overcrowded and I always have to wait at least 30 to 45 minutes before she sees me. Her staff is just as rude to me as she is. They look like they hate working there. She’s just an unpleasant woman. I hate going to see her.”

Related: How Much Should I Charge Clients?

“So why do you?” my wife asks.

“Because I have a bad skin condition and she’s the best.”

Why do we wait in line at restaurants? Why do we pay hundreds of dollars to see rock stars such as U2 and Bruce Springsteen? Why do women buy Dolce & Gabbana? Why are you so loyal to Starbucks or your iPhone? Why does Karen keep going back to that unfriendly dermatologist?

Marketers will give you lots of reasons. The branding. The promotion. The public relations effort. Our desire to be like celebrities (or not be). Our egos. Our emotional hot buttons. These are all factors. But really, there’s one overriding reason why these companies and people are popular and successful.

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It’s because they’re good at what they do. They’re competent. We like good food and good music. We appreciate a top-quality education. We desire good service and we like to look good. And we enjoy products and technologies and companies that deliver on their promises again and again to make our lives a little better.

We are willing to pay the premium for that competence. Competence is very hard to find. We yearn for quality, value and consistent results. We are constantly in search of people and organizations who can deliver that. And when we find them, we are grateful to pay whatever they ask.

How about your customers?

The dermatologist is socially awkward, has poor bedside manner and is not exactly an inspiration to her employees. But she’s very, very good at what she does. Her waiting room is almost always full. Like the line at that great restaurant and Starbucks. Or the application pool for an Ivy League school. Competent people and organizations are given greater leeway, are held in more regard and can charge higher prices than their less competent competition.

This is what I’ve learned from running a company for 20 years: if you do great work, your customers will love you. If you are always delivering as promised, consistently and providing quality products and services, then your customers will be loyal. You won’t have to think about your competition. You won’t have to do much marketing or public relations. And you won’t have to worry about your prices. They’ll pay. Oh yes, they will pay.

Related: The Real Reason Customers Buy From You

Gene Marks

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Entrepreneur Leadership Network VIP

Gene Marks is a CPA and owner of The Marks Group PC, a ten-person technology and financial consulting firm located near Philadelphia founded in 1994.