It’s tempting to reduce prices. Reasons include low self-esteem, competitors with a large share of the market, customers who seek reductions on grounds of lack of funds or friendship.
The rule of thumb is, if you think of changing prices, increase them.
The Race to the Bottom
Perhaps prospects don’t buy and explain they can’t afford it. Not having enough money is a great way to let you down gently. We’ve all done it. “Your offer is really great but I can’t afford it” sounds better than “I don’t like your offer”.
Then you find someone who turned you down on grounds of price has found money to pay someone else! What does this mean? Perhaps, you were not right for them. Or perhaps you did not make an offer as irresistible as your competitor’s.
If you reduce prices, you might undercut competitors. What if they respond by undercutting you? This is called the race to the bottom. Experienced competitors hold prices or increase them. We need to understand why.
Cut prices and you need more customers to break even and more time for marketing. Reduced prices are a prelude to going out of business.
Another reason to resist price reduction is self-esteem. Price tells your prospect how much you value yourself.
Successful businesses increase prices for a reason. They think about capacity. When a business attracts many customers, providing a reliable and quality service is important. The business also needs time for marketing. Increased prices reduce demand and the business needs fewer customers. Having a waiting list is no bad thing!
High prices communicate about your business. They are part of your story. If prospects want your services enough, they find the money. Your challenge is to respect that and meet or exceed their expectations.
Pricing Tells a Story
Pricing opens up options for your business. Your prices tell a story. You need a range. Always have one or more high-end offers and free stuff that captures interest, drawing people into your business as prospects.
In between, offer opportunities for prospects to try you out. A coach might use workshops to engage interest. This can be at a significant price but not huge; between £50 and a few hundred pounds.
If your basic price is high, you have room to make offers and not lose out. These might be early bird offers or offers for those who are on your list or those who bring a friend. So long as you have a good reason, you can make generous reductions.
Consider using a workshop or low-end events to upsell to higher end offers. If someone attends something, offer a reduced rate for higher end activities.
With high end offers, you have scope to make reductions for customers where there is a good reason to do so. This works where you have a good story!
A lot depends on confidence and so that is the next topic in this sequence about business failure.