The prices you charge are part of your marketing identity. Do you have the lowest prices in town, or are your products seen as high-priced and high-value?
When you compete at the low end, you become a seller of commodities. Whether you offer a product or a service, if the buyer’s primary motivation is price you will always face the possibility of losing business to a competitor who chooses to undercut your price. As margins get slimmer, it becomes harder to sustain your business. A well-funded competitor may even sell below cost for a while to drive you out of business.
On the other hand, there are a number of ways to make sales that do not involve reducing prices. The perception of many customers is that expensive equals good, and more expensive equals better. Reach those customers by showing them why you are, in the words of the l’Oreal commercial, “expensive, but worth it.”
Value. Some unscrupulous merchants mark prices artificially high so that they can offer large discounts and present their pricing as a great value. More ethically, you can show that your product or service provides a better value than others. Your price does not have to be low to be a bargain. For example, although your widget costs a little more than others it has a longer life. Your services get better (and faster) results than those that appear to cost less.
Scarcity. When something is available in limited quantity, or for a limited time, it becomes more valuable. Each holiday season, there is a hot toy that is in limited supply. Could they make more? Sure. But then there wouldn’t be the same sense of drama and excitement as customers frantically buy every one in sight.
You can use scarcity by offering products that have a limited run, or by emphasizing that you have openings for only a small number of new clients. After all, your time is a scarce resource.
Retreat. Many salespersons use the strategy of selling a customer on an inexpensive item, then trying to shift them to a higher-priced choice. Not only is this dangerously close to bait-and-switch, it doesn’t work all that well. A better strategy is to show the customer a high-end product followed by a less expensive item. The price of the mid-range item will seem more reasonable after seeing the expensive choice. Another version of this technique is to show three items at various price points. Customers will typically choose the mid-priced item.
Status. Some customers may be willing to pay more for a label or other display of status. The Porsche Cayenne and the Volkswagen Toureg are almost identical; however, because one is a Porsche it commands a higher price. Status can come from the image of the brand, or even from a location, such as having a Beverly Hills address.
Pricing must be consistent with other aspects of your marketing identity. If your prices are upscale, your products and services, and everything that surrounds them, must be also.