Today I wanted to take a bit of a detour to what I’ve been blogging about recently and share a business post I wrote 5 years ago – about selling. And specifically – pricing and that old chestnut of a question “what should I charge”.
Since I wrote this post I have a much greater awareness of how our patterns get in the way when it comes to pricing and I’ll be sharing more about that tomorrow.
However this post is still as relevant today as it was 5 years – and whilst Robert Cialdini wrote the book I refer to back in 1984 it is still a business classic – and one I highly recommend.
I had a clear out of all my books in the summer and this was one that stayed.
So pricing! What should I charge?
We tend to think if we charge less – we’ll sell more – after all more people will be able to afford it. But actually this might not necessarily be the case.
Indeed a higher price might mean more sales:
In Cialdini’s book “The Psychology Influence of Persuasion” he talks about a friend who had a jewellery store in Arizona. She was having trouble selling some turquoise jewellery despite many different sales tactics to get them moving. Finally she decided to sell at a loss and left a note to her head saleswoman to mark everything at ½ price.
When she returned after a business trip she was delighted to see that all the items of 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 (which Cialdini explains in detail) it follows our natural inclination to believe “you get what you pay for”. In this case, her customers, mostly well-to-do holiday makers with little knowledge of turquoise, were using a standard principle – a stereotype – to guide their buying, i.e. “expensive = good”. Thus the holiday makers, 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.
In the UK we mistakenly believe that lower prices will mean more sales. However this is often simply not true. Take a look at some of our leading brands – for example, Pampers – the best selling nappy, Coca-Cola – the best selling soft drink, Fairy Liquid – the best selling washing-up liquid. Other than selling more items than their competitors, what is the one thing they have in common? Yes – they are all more expensive than other brands.
Are you selling your products and services too cheap?
I know I have been guilty of this (and in fact I am still guilty of this which is why I think I keep coming back to this post over and over).
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 cannot 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 – yes they may pay a little more but so long as you’re delivering an exceptional service they won’t mind.
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?
Indeed how do you know what to charge in the first place? Do you look at your costs and add an acceptable profit 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 find out from your customers and test different prices to find out which is the most profitable? If you do test price I’d love to hear from you.
Nine times out of ten I recommend that my clients increase their price (and at the same time tell their customers why they are different and why they should do business with them). Not one of them has told me they have lost business as a result.
Indeed if you are NOT losing 20% of your business based on price – you are too cheap!
Yes I have heard lots of reasons why you can’t charge more but it’s 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.