PRICING YOUR PRODUCTS
PRICING YOUR PRODUCT
I will talk about an issue every entrepreneur or professional faces daily and that is the dilemma of how to charge/price our products/services. Definitely, at some point, you will have been in a fix about how to price your product/services especially when it seems the whole industry is doing it one way and you can’t seem to get how they do it profitably
Today we will consider pricing from two perspectives:
1. Understanding customers’ psyche about pricing
2. Pricing techniques to employ as an entrepreneur
Let me start by asking you to ponder on these questions:
- What do you understand by the terms price and value?
- How are the two related?
I can safely assume that by now you have either checked google or asked someone but I will still go on to explain both terms.
The Value determines the Price customers will be willing to pay for your product/servicesPeople want quality for decent prices, not the cheapest prices. Your duty as an entrepreneur is to create perceived value in the mind of the customer.
Now that we have a good grip on the foundation terms, let’s build on it.
Which is more important to clients in pricing: price or value?
Most of the people I have met, they believe that people always want the lowest price for services/products. It’s a myth we have come to believe especially in Nigeria, that customers are after the cheapest deals.
To break this myth, I will paint two scenarios here.
Pricing SCENARIO A
If you walk into an electronics shop to purchase a TV and the price tag reads 120k real price, 100k discounted price. You probably are ready to pay, then you got a call about another store that sells the same TV.
Pricing SCENARIO B
A different day, you enter a store that offers TV for 150k but the discounted price is 110k. You then get a call from another store selling it.
Both scenarios are mutually exclusive and are not happening at the same time. You only have an opportunity to look at it in hindsight.
In which of the scenarios are you most likely to be prepared to pay or even pay without checking other places out?
Interestingly, when this question was posed to hundreds of people chosen randomly, a larger percentage said they will buy in scenario B without checking the next store.
What makes it more interesting is the fact that the price is higher in scenario B.
Customers believed they are getting a better deal in scenario B because they are saving 40k.
This validates the point that; most customers are willing to pay higher if they believe they are getting a better deal.
People want quality for decent prices, not the cheapest prices. Your duty as an entrepreneur is to create perceived value in the mind of the customer.
You can notice the different approaches employed by the two stores in our scenarios. They both sell the same product, the same quality but one was able to charge a premium. Store B created a perceived higher savings of 40k as against 20k savings in store A.
For those that still think the price is the most important factor in decision making for customers, I will ask a question;
- Is your mobile phone the cheapest in the market as the time you got it?
- Are the clothes in your wardrobe the cheapest you could get?
I can boldly assert that most of the things you have now were not the cheapest in the market when you got them. So, with all this knowledge, why do many entrepreneurs still lower their prices?
Studies have shown that most entrepreneurs lower their prices because of the following:
Lack of Innovation
Entrepreneurs who have run out of options/innovation on how to attract customers or keep them will result to a price reduction. They believe if their price is higher than competitors they won’t get customers, hence they reduce prices till they run out of business.
This is closely related to the first point, the only difference is that price reduction is influenced by competition. Some entrepreneurs reduce their prices because other players in the industry especially the bigger boys are doing it. They forget that some of these big boys have huge contingency funds/large investor base that can allow them to take a continued loss for some time until they gain specific market share.
Don’t get pricing wrong
Don’t get me wrong, a low price is not a bad method to gain customers if you know the rope well. People (customers) will resist prices, but most times the resistance comes from the business owners.
How many of us have asked for a professional fee or product price and the business owner calls a price below what we had in mind to pay? That is price resistance from the business owner. He could have gotten more but chose to play it safe.
How to use low prices without losing out
- Sales and promotion: make the price reduction a promo or bonanza with a deadline. Make it real and reasonable with sufficient intervals
- Upselling: you can reduce the price on your product with the lowest profit margin while upselling other products with a high-profit margin.
Price war is the least form of business intelligence that only leads to business collapse. Smart entreprenurs only enagage in value differentiation.Work on yourself, increase your value and project to the world.
How to Make Your Products/Services Look Valuable in pricing
Make your products affordable
Pause, and get it right here. Affordability is different from being cheap.
I will share a short analogy to give more clarity.
Many consumers love powdered milk sachets because they believe its cheaper than the big packs. Let’s do maths; the price for 850grams of a particular brand of powdered milk is #2080 while the price of the tiny sachet of 20grams is #60. You need 42.5 small sachets to make 850 grams i.e #60*42.5= #2550.
Hence, small sachets are more expensive when compared to the big bags. For you #60 is affordable but to the company it’s profitable. Yeah!
I was as surprised as you when I came across that Mathematics.
Pile adds on and extra perks
Always look for ways to go the extra mile to please them and offer additional values. It could be add-on services or related services offered. e.g. A nursery could offer to deliver the children home when their parents call they are back home at no extra cost even though you as an entrepreneur will have factored it in.
Any business could charge a premium for its product/services by being innovative with a form of delivery. Changing it could easily allow you enough room to safely adjust the price.
Important Notes on Pricing
Conclusively, people will buy who you are first before they buy your products/services.
Work on yourself, increase your value and project to the world.
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