I am currently reading a good book by Ian Brooks called ‘Persuade your customers to pay more’. It covers some truths and myths around pricing.
When setting prices you have two options. You can either compete against your competitors on price, or you can compete on value. If you do not complete on value then the default is competing on price. Unless you have a low cost model, competing on price will put you out of business.
So what do customers value instead of price?
- Convenience – will I will pay more at the dairy than the supermarket if I am short on time?
- Service – are the staff friendly, will I be able to call them if I have problems?
- Reliability – will the products last, will I get my car fixed in the time promised?
- Reputation – do I call a plumber that gets good reviews, or find the cheapest available?
- Range of products – how much choice do I have, are they are one stop shop or do they only stock a few items?
- Problem solving – will they solve my problem, or will they just sell me what they have to offer?
- Flexibility – will the café be able to modify their menu to cater for allergies?
- Payment options – can I pay by credit card/EFTPOS?
The benefit to you when buying is the value of the purchase less the cost of buying that product or service. To accept a higher price, you need to receive an increase in value.
What is value?
When you want to purchase a product or service, you are trying to solve a problem. To solve that problem you have certain requirements.
Imagine your car is now costing you too much in maintenance, so you need to buy a new car. These are the value items you might have on your shopping list:
- The car must be able to fit the whole family
- It must be comfortable for family weekends away and have enough boot space
- It must have a good safety rating
- It needs to be purchased from a reputable car yard that will be able to fix any problems that occur after purchase
- It must be reliable and not need immediate repairs
If the car yard salesman focuses on getting you a low price car, you are likely to walk away very quickly. At the other end of the scale, if the salesman want to only show you the latest and greatest car with all the gadgets, the cost of that car is going to very quickly exceed the value you want from that car.
So when you are setting prices for your customers, consider what the problems are that you are trying to solve, and what value are you providing for your customer.