Price and Perception: How to set your value in the market
The price of your product or service should be a reflection of its value. Most consumers intrinsically believe in the “you-get-what-you-pay-for” philosophy. So what’s the right price for your offering? I don’t have a magic formula for setting price, but I will share with you a key to determining the right price: value.
What is Value?
Value is the inherent desirability of your product or service to your customers. It is reflected in your brand. The greater the perceived value of your brand, the higher the price you can and should charge.
Take chocolate, for example. Bulk chocolate is cheap. It’s not the tastiest treat, but if a customer is making a buying decision based on price, its good value. A good mid-range chocolate such as Nestle or Hershey’s will be a bit more costly, but customers will value the established reliability of the mid-range chocolate brand and will be prepared to pay the price. At the high end of the price scale there are chocolates that sell for more than $1000 per kilo. And yes, customers are willing to pay the price. Why? Because they want a chocolate of the finest quality, guaranteed to tantalise their taste-buds and melt in their mouths. The price of these chocolates makes a bold promise, and to these customers the value of that promise supports the price.
Is your Business offering Bulk or Prestige?
When you set your prices, you need to consider your value to customers. Low prices may equal bulk sales, but they reflect low quality. That’s OK if that’s what your customers want and that’s how you want to position yourself. High prices equal high quality, and if that’s your position you need to make sure your customers know the value you provide with the price. If you clearly communicate your benefits and target the market that values those benefits, your customers will be more than willing to pay your price.
The Painful Pitfall of Pricing too Low
Some businesses, especially in these difficult economic times, are tempted to discount their prices or set their prices too low. The motivation behind this decision is usually fear rather than overall brand or business strategy.
My friend, a plumber, fell into this trap. He intentionally set his price at $40 per hour when his competition was charging between $50-$150. He was a new plumber so he was scared he wouldn’t get any business if he charged what the others did. He advertised, and then he waited. And he waited. But he didn’t get any calls. Eventually he asked his mentor, another plumber who charged $120 an hour and had a booming business, what he was doing wrong. It turns out that people are scared of hiring plumbers who charge less than the going rate because they equate price with value or quality and they’re usually right. The mentor was often called in to fix problems that cheaper plumbers had left behind. My friend the plumber increased his rate to $90 and quickly grew a profitable business.
Low prices send a message of low value. That can be damaging to your business image and brand.
What’s the Right Price?
To set the right price you need to consider 2 things:
1. Your positioning strategy: bulk, mid-range or prestige
2. Your customers’ perception of value
Clearly communicate your value and set your price to reflect it. Don’t be fooled into thinking you need to compete on price when it is just as viable and often more profitable to compete on value.
Deborah Jackson helps businesses understand how price, position, value and other key marketing strategies contribute to their success. She helps her clients identify and communicate their brand value to ensure they work with great customers, charge premium prices and enjoy profitable returns.