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Brick No58: What really happens when you price high
By Matt Weston, Friday 16 April 2004 Probably the most important marketing decision you can make On Tuesday, I talked about choosing names. I argued that Al Ries and Jack Trout's claim that "the most important marketing decision you can make is what to name the product" just doesn't add up. Choosing your name just isn't that big a deal. I've never seen a small business go to the wall simply because it had chosen the wrong name. You remember. So, for contrast, I'm devoting today's missive to a genuinely important marketing decision (probably THE most important). A decision that can have catastrophic consequences for your business if you get it wrong: how to set the price for your product or service. What really happens when you price high First things first: by far the most common pricing error small business owners and freelancers make is UNDER-pricing not OVER-pricing. (McKinsey consultants reckon that, in their experience, 80-90 percent of poorly chosen prices are too low). And this from David Ogilvy: " The higher you price your product, the more desirable it becomes in the eyes of the consumer . . . Most of the marketers I know are afraid of pricing their products above competition. " Ogilvy's right of course (he almost always is). Your stated price is the very first impression your prospective customer has of the value of your product or service. But invariably small business textbooks will tell you to use your cost and competition as the basis for calculating your price. Either work out your costs and add a fixed amount (called a 'Cost-plus' formula) or multiply your costs by a percentage margin (called a 'Cost-multiple' formula). How you work out your fixed amount or percentage margin depends on what your competitors are charging. But Houston, we have a problem You should never price your product simply according what it costs you. Your prospective customers don't really care about what it costs you to produce your product or service. Your customers only really care what value your product or service is to them. And if it is of real value, then don't be scared to price accordingly. I received some feedback the other day from a graphic designer who had read brick #13 on logos. He charges as little as £20 for a logo, much cheaper than the £150 I suggested as a benchmark in brick #13. (Apparently he's much more efficient than your average logo designer, so can charge less without sacrificing his high quality). I have two problems with this: (1) If you're charging £20 instead of £150, the first thing the customer will query is the quality (2) Why charge £20 for a logo when its value to a customer is £150? Leave undercutting to the big boys. Don't be scared to price higher than your competitors. As long as you can justify your price in terms of quality, flexibility, fast-turnaround, specialisation, or a personal touch you have nothing to worry about. (And remember, they're all things that small businesses are naturally good at). Remember to sign up: back to top |
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