There are many aspects of pricing that are important to a business’ success. Knowing when and how to adjust prices is critical to your relationship with customers, the market and your business results – your profit. Find out more in this video, The Gambler and the Art of Pricing.
Pricing Is More Than Just Price Increases
In this blog you’ll understand that pricing is about more than just implementing price increases. Price increases are important to profitability, however in some cases the better thing to do is to hold prices and in others even lower them – i.e. the art of pricing. Understanding your position in the market and regularly reviewing it will help you develop a stronger intuition for when to do what.
You do have to be careful. Often times people mistakenly believe that if they lower prices more people will buy or people will buy more. This assumption has been a costly mistake for many businesses. To often they don’t get the volume increase they hoped for and end up earning less money than before. It can happen that a price decrease brings bigger profits, but the right conditions must be present in order for it to happen.
If you feel your prices are too high, first do your research. Understand what your target customers really think; are there segments within your target, what are they comparing it to in order to determine if the price is a fair exchange for value. There are many reasons they might feel it’s too expensive; reasons that have nothing to do with what you’re offering or the price.
For key products, that are properly positioned you’ll probably want to hold the prices. Customers are often most price sensitive when it comes to the core products – core products being the products customers come to you for rather than accessory type products. However keep in mind that if you’re not keeping up with inflation then you’re actually lowering prices. Sometimes holding the price actually means a 1-2% price increase. While holding prices fairly steady on the core products, you might at the same time want to consider bigger increases on add-ons and complimentary services. Customers are generally less price sensitive here.
Often times entrepreneurs are afraid of raising prices, even when customers are telling them they are priced too low. If customers are telling you you’re not charging enough…then it’s time. There are many ways to eloquently and with a minimum amount of pain implement price increases. However you also need to keep in mind that you might lose a customer or two; this is not the end of the world. If you implement it well then you’ll still end up more profitable in the end.
The Art of Pricing
Now you know that pricing is an art form and more than simply implementing price increases. How do you monitor when and how to implement price increase? Share your thoughts and questions in the comment section below.