Are you offering people a price-shopped product or service, or one that is results-shopped? The distinction is critical. "Price-Shopped" items are essentially commodities -- "things" (milk, for example). People buy "things" wherever they find the lowest price. Period.
But a "results-shopped" item is totally different. If your customers / clients / patients are looking for a particular result -- a certain sense of fulfillment or inner satisfaction -- then you as a seller have much more flexibility, and a better chance to make a nice profit when setting your prices.
My recommendation is to always try to move your business toward the "results-shopped" business category and away from the "price-shopped" crowd.
What To Do To Grow
Let's say that you are at least temporarily trapped in the "commodity" pricing web. What can you do to win at that sticky game? Here's the answer.
If you must price low, price even lower than your competition, but make your price contingent upon the customer buying some other product or service -- or some combination of services or products -- that have high profit margins.
That's what my friend Drew Kaplan did a few years ago. Drew ran an incredible ad for his direct-mail electronics company that asked, "Can You Be Bribed?"
In the ad, Drew offered a digital watch that was selling everywhere in the country for $30 for only $5.98. But, to get the watch at $5.98, you had to buy a dozen blank cassette tapes for $29 that he made about $16 on. Drew's cost on the watch was around $7.25, so he lost just more than a dollar there. But since everybody purchased at least one set of tapes and many actually bought multiples -- his cumulative profit was huge!
You can do the same thing that Drew did, and do it in a way that makes your customers or clients celebrate the great buying opportunity you're giving them. But don't feel compelled to price all of your products or services low. Lowball only those items that are most price- sensitive.
Here's a case in point: I talked a chain of gasoline (petrol) stations in Australia into dropping their price a penny below the competition. Their volume massively increased. But, that wasn't the real beauty of the story: The "beauty" was that they had minimarts in their stations and, with extra traffic attracted by the gasoline markdown, their clerks were able to sell many more products. Bingo: Profits increased by $900,000 in six months.
It was wonderful. As people came inside to pay for gas in the morning, they would pick up coffee, milk, and other items that the clerks called their attention to, including hot ham and egg sandwiches. Gasoline and milk are price sensitive, but a ham and egg sandwich isn't price-sensitive when your stomach is growling!
With pricing, the thing to fix clearly in mind is that you might have to be a "commodity" in the first part of a transaction, but you rarely need to be a commodity beyond that point.
If something is heavily price-shopped, offer a bigger package. Refuse to compete on a commodity basis. If everyone is selling a gallon of something for $1.80, don't sell single gallons alone. Pack five gallons together at an incredible price -- a price where you can get a purchasing advantage in quantity, and one you can use to make a good profit while offering your customers superb value.
And promise me you'll always test your prices, because you might discover that you're underpricing out of sheer, unreasoning intimidation.
There's a great story that makes that point in a book called Influence, by Robert Caildini.
Caildini wrote about a retailer who sold turquoise jewelry in a gift shop in Santa Fe, NM. The jewelry didn't sell well. So, the owner decided to cut prices and blow the jewelry out. Before going on vacation, she left a note telling her clerk to cut the price of everything by half while she was away. But the clerk misread the note. He thought the store owner meant that prices should be doubled! So he marked prices up, not down. When the owner returned from her trip, she was amazed to find that every piece of jewelry in the store had been sold.
Why? Because the prices she had used before the change weren't in synch with the jewelry's perceived value.
See the moral? Test. Test. Test. Every concept, technique and strategy I ever suggest to you will be one that you can test. My hope with prices is that you will test yours so that you can position yourself to price right. The market will always tell you whether or not you made the correct choice.
I have seen higher prices outpull lower ones by as much as 400 percent, but I have also seen lower ones outpull higher ones by a similar margin. Without testing, you're guessing.
Be willing to stretch and expand a deal, too, even if you have to bid competitively. I have gotten a surprisingly large number of my clients to come back with a bid that included things preceding, following or simply complementing the main activity they were bidding on.
Example: If they're bidding on a job that calls for painting a building, then make it a package bid -- one that also includes stripping, caulking, waterproofing and whatever. If the combined price is much lower than the separate bids their prospective customers have gotten, my clients often land both the job and a handsome profit.
Unless you're willing to price in an innovative proactive and inventive way, you'll always be at risk of selling products at less than you pay for them. You'll also be at risk of failing in business.
Most business people fight price wars just to generate customer traffic. But unless you have a well-strategized plan of action behind what you're doing, you can't possibly profit from a price war. In fact, in most price wars, nobody wins.
Instead of rushing into a price war, I urge you to "position" your customers or clients to make repeated purchases from you. Do that when they make their first discounted purchase, but make sure that the additional things they buy from you aren't all being sold at a loss, or at only a meager profit. More likely than not, you don't have to discount that deeply or broadly.
Don't Psych Your Own Prices Down
They may be tough, but most customers, clients and patients won't deny you the opportunity to make a profit. More often than not, we psych ourselves down the price scale.
Wouldn't it be sad if you found out next month or next year that you had been denying yourself 50% more profit on half or three-quarters of the services you sold just because you were afraid to ask customers to pay what the items were worth to them?
If I'm wrong, you will know it in a week or two from the results of a test ad or sales experiment. But what if I'm right? Please don't take any chances. You've got too much to lose--or gain!
You may not have your test fully in the mail within 30 days, but you will be in a great position to start the process of selling by mail in your business or professional practice
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