Price and value

In my recent blog on pricing I contrasted value with price. But there’s no denying that price can be a deciding factor (not the only factor) in whether or not you make a sale, or keep a customer.

Can a price ever be too low? Let’s leave aside for the moment the economics of you making a profit, and the mechanics of offering discounts or loss-leaders, and concentrate on how the customer sees this.

Perhaps you think the way forward is to reduce prices in an attempt to secure a larger market share by being cheaper. Assuming the product costs you £70 per unit to produce, this cost still has to be met, so, if you reduce your selling-price from £100 to £90, for every 10 units you sell you will make £200 gross profit rather than £300. You may well sell a larger quantity, but your direct costs of sale remain the same (unless you can force a price reduction on your suppliers) and your overheads are likely to remain the same (or even increase, if the volume of business increases). The other thing is to look at the type of customers you’ll attract. They’ll be the sort of people who always go for the cheapest and then complain when they’ve got it! Moreover, customers who buy from you based on price will inevitably leave you based on price, because there will always be someone cheaper out there. Unless you’re genuinely in the bargain-basement sort of trade – I’d say this is not the way you want to go!

If you are selling a product which is exactly the same as your competitors’ product, then I can’t deny that an appreciable proportion of any customer-base will go on the lowest price. That’s what price comparison websites are for. The only way to charge a higher price for these products is to use strategies other than price pure and simple (and I’ll be dealing with some of these in future blogs).

But if, as is likely to be the case with many businesses (especially service businesses), you’re not dealing with identical products – think again!

The customer, in general, tends to feel that if the price is low, the product or service may not be worth having. There’s still a good proportion of people who are interested in paying for a quality product. Why? Because they feel that they deserve to have the good things in life!  These individuals are not going to be swayed by a few pounds off – and these are the customers you want!

Mind you – don’t run away with the idea that they’ll be a pushover! It’s said that rich people didn’t get there by giving it away and that no-one likes a bargain more than someone who can easily afford the full price. But what you want is the discerning customer – and they can be found at every level.  These customers are far more likely to appreciate a good product and added-value services than they are to buy because it’s cut-price.

So know your customer, know your product, and have a proper appreciation of your own worth as a supplier.

I’d love to hear your experiences on this aspect of pricing!