Don’t get fooled, pricing your products is NOT easy! If you think it is…then you’re likely doing it wrong (and probably need to charge more). Did you know you could increase how much you sell when you price products right? Remember, you’re building the infrastructure for a business that will thrive (not just merely survive) in the long run. What happens if you’re doing it wrong? Well, the truth is your business may never recover. It’s important to understand that the price of your products determines the success (or failure) of your business – it’s THAT important! In this post I’m going to discuss the consequences of over and under pricing.
Before I get started I want to get a few things off my chest:
- Despite all the different kinds of pricing strategies, there is no guaranteed, one-size fit all method. No single technique will work for every product, business, and market. This is because pricing is just as much of an art as it is a science.
- If you believe “price [alone] drives sales,” then you are making a HUGE mistake. This is NOT TRUE! Sales skills are what drive sales, period. This means understanding your customers, figuring out the right sales strategy, and hiring the right people to do the selling.
Now, onto the crux of this post. These are the top two pricing perils every business encounters – under pricing and over pricing:
- Under Pricing: It’s a good idea to reduce your prices during an economic downturn. FALSE – pricing your products too low always cuts into profits. Furthermore, this makes it that much more critical to accurately price your products in a down economy. When you drop your price to increase volume, (don’t kid yourself) you’re just convincing consumers that your products are cheap. Not a prudent approach. You don’t want your customers to think your products junk. The “race to the bottom” with the lowest price approach is not sustainable in the long run, so don’t go cheap.
- Over Pricing: Overpricing can be just as damaging as underpricing. TRUE – Really? Indeed! This is because pricing beyond the customer’s desire to pay actually decreases sales. Remember, customers just want a fair price. Yes, you need to make a profit. However, know your customer and be knowledgeable about what they are willing to pay.
Thanks to ETC Guest Blogger
Paul Hill – Utah State University Cooperative Extension