Mathematically speaking, pricing a product or service is a relatively simple thing. You start with your costs, figure out a fair and reasonable mark-up based on overhead and profit margins, and there you are—a price.
You can stamp it on a tag, write it on a list or even print it in a menu. The concept is relatively simple, but it can be interesting to see how people respond when you ask about price.
Do they ignore you and continue rambling on about features, benefits and impact? Do they immediately talk about how much less they are in comparison to the competition? Do they look you in the eye and offer a straightforward response?
Let's look at each of these pricing "strategies" and figure out the best way to address price-sensitive issues.
In It For The Now
If you've ever bought a car, you know how this approach works:
Buyer: "So how much is it?"
Seller: "That sunroof is a great feature, and it really adds to the look of the car."
Buyer: "I agree, how much is it."
Seller: "These models really do a great job of retaining their trade-in value."
Buyer: "Good to know. So what are we looking at in terms of price?"
Seller: "Did you see the …"
In this instance the seller was trying to dodge the price issue. While something can be said for not immediately looking to provide a discount, they still demonstrate a complete lack of confidence in their pricing strategy.
Whether it's a hand tool or an ad in a magazine, a seller's response to the price question helps the potential buyer define one very important component—value.
We could do return-on-investment studies all day long about the benefits of selling for value instead of price, but the bottom line is if you cater to those who are simply looking for a deal, it's never a one-time situation.
If you give in once, you'll be forced to make the same concessions over and over again. And in the process your product and services become under-valued. While squeamishly avoiding price-based concerns may help in the short-term, your business is neither positioned for long-term success or optimum profitability.
You're basically diminishing the customer's expectations of your future capabilities, and jeopardizing your long-term stability.
Let Me Cut You A Deal
Buyer: "So how much is it?"
Seller: "We're much cheaper than ACompetitor Company."
Buyer: "Okay, so what's the price?"
Seller: "We're willing to offer special discounts for your type of business that's 40 percent lower than our competitor."
Regardless of what the buyer responds with, the seller has really placed themselves in a losing situation. If the buyer says yes, they may have received the sale, but, "at what price victory".
On the other hand, if the buyer says no, all they've got to fall back on is yet another price decrease. The value is lost and the credibility of the company and their products is forever damaged because the main bullet in their gun dealt with price, instead of value.
The Pay Off
Buyer: "So how much is it?"
Seller: "We charge $XYX."
Buyer: "That's kind of expensive, especially compared to your competition."
Seller: "That may be, but let's talk about what we bring to the table, and what you're looking to accomplish. Our price is our price."
A straightforward response that neither side-steps the issue nor immediately slashes prices says the seller is confident that their products or services are of a premium nature. Plus, this also provides another opportunity to cover the selling points and reinforce the VALUE they're bringing to the table.
It's funny, but it seems there's a certain hypocrisy when it comes to customers who buy based on price. They want to charge a premium price for their product or service, and will complain when their vendors want a better deal. However, when the shoe is on the other foot, they go with "whatever's cheapest".
Avoid these types of customers. Not only is their long-term viability in danger, but they'll lead you down a pathway of constant price haggling that does nothing to reinforce value or quality. Plus, there will be absolutely no loyalty, as they'll always be looking for a better deal.
In the end, your prices should be seen as a real badge of honor. They help separate the quality customers looking for a valuable product that truly delivers from those simply buying what they believe is a commodity item at the lowest price.
These figures also help establish a benchmark for quality that speaks volumes about the seller's confidence in what they're selling.
Both of these translate to ways in which you can set yourself apart from the competition and feel good about higher pricing strategies that meet you and your customer's immediate and long-term goals.
