Three Different Pricing Approaches – And Only ONE Good One!
The subject of pricing is always an interesting one for small business owners. There seems to be literally millions of pieces of advice about pricing tactics and strategies – just do a Google search and you will quickly feel overwhelmed.
But I like to simplify pricing by thinking of there being only three approaches to it.
This approach is simply one of “pricing emulation” – you base your prices on what your competitors and your market are charging, and what customers have come to expect. This approach, while very easy to apply, is such a weak form of managing your pricing that it should be made illegal.
This approach makes you a helpless participant in a business destined to suffer mediocre financial results. And you will NEVER be able to truly get control of the financial results your business creates for you.
In other words, despite being an easy pricing approach; and despite being the most common pricing approach – DON’T DO IT!
This approach is the exact opposite of the Price Taker.
In this approach, you set your prices where you think they should be and simply force them down your market’s throat.
This approach CAN be financially rewarding.
But it has it’s share of problems too.
The Price Dictator approach can lead to customer resentment because they feel you are charging too much, or are charging an unwarranted amount.
Price Dictators often do very well financially for a period of time, and then find their business under attack from another, more agile and smarter pricing competitor.
And that more agile and smarter competitor is the…
The Value Trader
This is the most effective pricing approach for any small business. It’s also the one that requires the most effort, and the most thought.
Which is also why this pricing approach is the least frequently used among small business owners.
In this approach, you carefully analyze the value your products and services deliver to your customers – from their perspective.
For example, if you sell personal training services, part of the value you bring to your clients IS NOT feeling better. That is a result you deliver, but that’s not where the value is from your client’s point of view.
Rather, one of the values you provide is the ability to play “horsey” with the kids and not get a sore back, and feel exhausted after a few moments. In other words, you are providing improved relationships with a client’s children and more fun to their leisure time.