Don't Be the Cheapest, Be the Best
Often, founders are worried about how they price their product compared to their competitors. They will find out what everyone else is charging and price their product towards the bottom end of the price range. Their reasons for doing this is they want to be competitive and ensure their price isn't a hurdle for potential customers.
Yet, I caution that pricing low is a strategy they should implement. Let me explain why.
Someone can always be cheaper
When dealing with the price of a good or service, new companies need to understand that there can always be a cheaper option. Regardless of how cheap they go, their more established competitors can choose to price their good or service lower than the new company. The competitors have established brands, usually more cash on hand, and are often willing to lose a little money in the short term to price out the competition.
Don't get into a pricing war with your competitors. Instead, offer something better than them.
People are willing to pay for quality
"We know we're not the cheapest option in the market, but we make up for that by providing our clients with once in a lifetime experiences and providing them with the best guides and programs," says Mike Brcic, the founder of Sacred Rides, a mountain bike tour company based out of Toronto that was recently ranked the mountain bike tour operator by both National Geographic Adventure and Outside Magazine.
He's very aware that they're not the lowest-priced option in their space but also understands that his customers are ready to pay for an amazing experience and because of that, his company has grown aggressively for the past few years.
Make more money selling one item than selling one hundred
Similarly, Rob Alday, the co-founder of Abode, a luxury property management company that specializes in high-end ski lodge rentals, decided to eschew the low end of the market to focus on lower volume and higher margins.
"Our rentals are not for everyone, and I'm alright with that," says Alday. "This just means that we're better able to focus on our core audience and this makes our marketing efforts easier and keeps our customer service requirements at a minimum."
Alday, like many other entrepreneurs in the luxury market have avoided pricing wars altogether and instead focus on a small segment of the market. This helps with marketing, infrastructure, growth, and overhead costs. Plus, he never has to nitpick over a dollar here or a dollar there when looking at his competitors.
So, the next time you're considering how to price your product or service, instead of sweating the pennies, look at how you can charge MORE by offering a better quality experience for your customer. You'll be shocked at how much less stress is involved with pricing up instead of pricing down.
Entrepreneur Editors' Picks
This Co-Founder Was Kicked Out of Retailers for Pitching a 'Taboo' Beauty Product. Now, Her Multi-Million-Dollar Company Sells It for More Than $20 an Ounce.
Have You Ever Obsessed Over 'What If'? According to Scientists, You Don't Actually Know What Would Have Fixed Everything.
After He Was Fired From the UFC, This Former Fighter Turned His Passion Into a Thriving Business
Most People Don't Know These 2 Things Are Resume Red Flags. A Career Expert Reveals How to Work Around Them.