Author Mark Stiving is a San Jose, Calif.-based pricing expert with 15 years’ experience helping firms increase profits through value-based pricing. He is the author of “Impact Pricing”, from Entrepreneur Press 11/11 Enhanced by Peter/CXO Wiz4biz
Perception. Before pricing your products & services, you need to understand how customers perceive value. I continually find that business owners price their products or services based on what they cost, versus what their customers are willing to pay. Even worse, I find businesses that base prices simply on what their competitors are able to get away with.
Example: A shop will mark up the price of its Products 50% points because that’s what the shop on the other side town does. Same goes for the 75% on parts & accessories and the 100% on loyalty items (ie logo clothes). In all cases, these businesses are failing to put real thought into their pricing, and I guarantee they are missing out on profits and are putting themselves at risk of losing out on potential customers because they aren’t charging what those customers are willing to pay.
Contrast that with Brooks Brothers, where a suit might easily run $150 more than a suit at Men’s Wearhouse. But that’s because Brooks Brothers officials know that their customers place a higher value on their store chain’s label, its panache. The people who aren’t willing to spend the extra $150 aren’t the type of customers Brooks Brothers wants anyway.
That’s what Smart Pricing is all about: a) Know who your competitors are & what they charge, b) measure what makes your products or services better or worse, then c) add/subtract accordingly from your competitors’ prices to figure out your own. It’s a pretty simple formula, but the devil is in the details. Here are four things to keep in mind as you crunch the numbers:
1. Listen to your Customers. You really don’t need to hire a marketing research firm to understand how your customers “value” your products versus competitors. Just take some time to ask customers questions and actually listen, versus just trying to close a sale. This is a good sales technique anyway.
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