Priced to Sell: Smart Pricing Strategies for Any Size Business 

Focus on value and stop sweating your pricing decisions.

May/June 2016

Setting prices for your product or service involves so much more than a simple equation of earning more than you spend on overhead. Set prices too high, and you could sacrifice volume. Price too low, and you may be leaving money on the table. Gaining the confidence that you are pricing to sell requires a long-term focus on your organization’s goals, along with flexibility to address a fast-changing business environment.

Start by adding value

When setting or changing prices, your focus should not be on short-term earnings, but on the organization’s goals over the long run.

“The key is to focus on increasing your perceived value by adding additional value to the customer experience,” says Charles E. Gaudet II, CEO and founder of Predictable Profits and author of The Predictable Profits Playbook. “Rather than focusing on how you can cut costs and compete on price, find ways to become the most expensive competitor in the industry and still have customers lining up to do business with you.”

In other words, an effective pricing strategy is one that takes the focus away from price altogether, instead emphasizing the quality of your products and services. If you are able to distinguish your offerings from competitors based on how good they are, rather than how inexpensive they are, price fluctuations will be less likely to impact your customers over the long term.

“Most business owners underestimate the lifetime value of a customer—often significantly,” says Ben Landers, president and CEO of Blue Corona, which creates and executes marketing strategies for businesses. While a low price might entice a first-time customer, it is unlikely to help a business hold on to that customer over the long run.

Discounts are the exception

Of course, there are occasions when offering a discount benefits the organization and strengthens its relationship with customers. When it comes to offering discounts or considering price reductions, small-business owners should ask themselves “What is the long-term value to your customer?” That’s the opinion of Anis Qizilbash, founder of Mindful Sales Training and author of the book Grow Your Sales, Do What You Love.

“When you give the discount without the customer asking or expecting it, it only costs you money,” she says. “In a face-to-face sales scenario, discounting too early leaves the customer feeling like they could have gotten away with more.”

If someone has already purchased from you and knows how much you typically charge, the discount will carry much more value and be seen as an exception, rather than the rule. If you earn a new customer on a discounted price but the next time they come in the full price has returned, chances are they will feel like they are paying too much for something they previously got cheaper and will go elsewhere.

The goal is to make it clear that the discount is an exception to the usual value of your products or services. Part of this is to give a clear length of time for when the discount will be offered.

“A 15% discount for a March special can create a sense of urgency, but the tactic only works if the customer knows the original price,” says Qizilbash.

Another effective approach is to reframe discounts as “rewards” for preferred customers, or encourage increased frequency (e.g., “sign up for auto-ship and take 10% off”). But even in these cases, discounts and freebies should be offered sparingly, keeping the focus on quality, not cost.

Manage price hikes

While price hikes might seem like a completely different approach than discounts, the strategy to managing them is similar: emphasizing the value of your offerings. When you announce that prices will be going up, explain why you are having to raise them and stress that you are doing so chiefly so you can continue offering your services and products at the same high level of quality that your customers expect. For example, if you run a coffee shop, explain that the price of the kind of fresh, high-quality beans you offer has gone up, so the cost of a cup of coffee unfortunately must also go up if you are going to keep selling the best coffee out there.

However you frame the price increase, make sure customers are well aware of it in advance, posting that prices will be going up at least a month before they do. This not only ensures customers won’t feel surprised but allows you to demonstrate that the increase has been carefully deliberated and determined to make long-term business sense—rather than an abrupt attempt to boost revenue.

Consult technology

As with anything else these days, there are several pricing apps on the market. By taking a data analytical approach to pricing, you can maximize your revenue and profits. Depending on your industry, there are many tools that can help you set or revise your pricing.

For B2B service providers, there is Propricer, a software product that organizes cost data, including labor, materials and other direct costs, and allows users to update and revise offers. If you are in a consumer-facing industry, Quosal leverages data and business intelligence to help you create the most advantageous quotes. Feedvisor configures pricing for e-tailers and Amazon sellers.

No matter how you handle pricing decisions in your business, the key to ensuring your products and services are priced to sell is to understand where you are in the market. If you’ve got referral business, loyal customers, well-trained employees and an incredibly well-done website, you can afford to be a bit aggressive on bumping up prices. However, if your marketing is out of date, you are not getting much word-of-mouth business, and your prices are the same or higher than your competitors, you may want to hold off on changing prices and focus instead on improving your customer experience.

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