Every business owner at some stage has to set a price for what they sell. Sometimes in our space people set a price super low when they start because they “just want to get some clients”, or it’s their reaction to pressure from external forces is to discount to try and generate more sales.
Most business owners price reactively, by comparing to their competition, by looking at their cashflow situation, by assuming what the “market will pay”.
But what if there was another, more profitable way to look at your pricing?
There are a couple of rules I encourage my clients to follow when it comes to pricing- 1. Never (or very rarely) discount, 2. Never compete on price (unless you plan to be the most expensive option).
These were two hard and fast rules I lived by with my online retail store, and they are still rules I live by now. My online store sold what many would consider a commodity- horse bits- and I had many competitors. Every item listed was at it’s recommended retail price (when the wholesaler set one) or higher. For many of my core brands I was the most expensive store in Australia to buy from.
Funny fact- for a whole year due to a stupid pricing decision by one of my UK suppliers, I was buying wholesale stock from them at the same price as I could buy retail from UK online stores. In the space of a month they doubled their prices to overseas retailers, while maintain their prices for their domestic suppliers. If I wanted to stay profitable I had to literally be the MOST EXPENSIVE store in the WHOLE WORLD selling those bits. Guess what? I still doubled my sales of that brand in that 12 month period.
Jason Marrs says that the most profitable question you can ask in your business is in a world where everything is being commoditized, where discounting is the norm, where price wars are the everyday, and most stores have a continuous sale on, why are there still some people who will knowingly and willingly pay more?
What is it that your clients value more than the numbers on the price ticket?
If you can answer that question, you can unlock massive profits in what you do, and incredible value for your clients.
Consider this- you can buy a pack of 3 pairs of undies from Best and Less for $10, or I can buy one pair of Bonds undies (my favourites) for $18. That’s almost 6 times as much per undie. Why would I do that?
I can buy a 2kg tub of washing powder for $1.99, or I can buy a 1litre of eco-friendly liquid for $9.95. That’s 10 times as expensive. Why would I do that?
I could buy bunk bed in a dorm room at a backpackers when I go to Adelaide in October to speak at a seminar for $50 a night, or I could pay $180 for a hotel room at the venue. That’s almost 4 times as much, why would I do that?
This is the most profitable question you can answer in your business. Write it down. Ponder it. Don’t rush to answer it.
Why would your clients willingly pay more for what you sell? What do they value more highly than the dollars they are handing over?
In the first example, I value the fact that my favourite bonds undies fit. Simple as that. I buy them time and time again, over cheaper brands because I know they stay put, they feel nice, and they suit my style. (lace is not really my thing #TMI)
In the second example, sure, both washing products will clean my clothes perfectly ok, and that means something to me. But my values and my concern for my own health as well as the health of the environment around me (now and in the future) means that I choose a washing liquid free of harmful chemicals and not tested on animals at any stage.
In the third example, because I’m a light sleeper (and terribly grumpy with not a lot of sleep) I’ve given up on backpacker rooms a long time ago. I value the quiet, the security of my own room, the privacy of my own space, the ability to order room service after a busy day in front of room speaking, I value the comfy beds, the clean bathroom, the sanctuary it becomes.
In all three cases, price is not a factor. The things I value in each buying decision mean more to me than price.
If you think this doesn’t apply to what you do with dogs or horses, you’re wrong. I willingly pay more to have my horse trimmed because I consider my trimmer the best in the state. Same with my bodyworker. Same with the agistment I use. Same with the tack I buy online, the winter rugs I order. The trainers I work with.
Each and every time I valued something greater than the numbers in the price.
Each and every time I willingly paid more for something I could buy (sometimes far, far) cheaper from somewhere else. It’s not because I’m pulling in a 7 figure income and have plenty of cash to spare. Horses are expensive creatures, and I’m watching my budget as much as the next person. This is not about buying the more expensive thing “because I can”.
I’m choosing to because that particular provider satisfied a different need.
That provider matched my values.
So next time you go shopping, even just at the supermarket, do it thoughtfully. Why do you buy the tomatoes on the vine for $6 a kilo rather than the pale, hard ones at $2? Why do you buy the branded cereal over the black and gold variety?
What values are driving your buying decision, and where does price matter to you, and where does it not?
Maybe it’s simply because it’s the most convenient. Maybe it’s because its the easiest. Maybe its the prettiest…
Then, look at what you sell, your products your services. Consider who you are selling to, and ponder what their values are, and why they would willingly and knowingly pay more for what you offer.
It’s a good question, isn’t it?