- Geekmaster
- 2020-03-25 11:09:17
- 9 minute(s)
Many bad pricing practices can be attributed to a few common misconceptions, or ‘pricing myths’. Things we keep telling ourselves, or beliefs that we consider facts of nature.
Practically, most lost sales were not about price but more about unspoken objections, ultimately it’s about the buyer having confidence in that product or service or idea is the right one.
"Price is not your problem to solve, but should be the customers problem to solve!" – Grant Cardone Share on X
Earning business is ultimately about getting the buyer to fall in love with the product and/or getting the buyer to have complete and urgent confidence that the product or service offered will solve their problems better than any other!
If different places have the same price then the extra value maybe the deciding factor not lowering the price.
In pricing we have myths that keep us warm.
And these myths prevail, causing us to lose out on charging higher prices over time. They force us to put on a coat, when it’s perfectly good to go outside without one!
Let’s take a look and find out what these myths are, and how to overcome them.
You Get What You Paid For
Does the phrase “you get what you paid for” still stand the test of time? The quick answer is yes, the more educated answer is no.
There are many products and services that obviously sustain a high level of quality design and thus receive their warranted premium price on the market.
On the other hand, many products today (think Dre Beats) get away with the bear minimum while charging exorbitant pricing.
In terms of the retail product market, this is simply because the cost of branding, advertising, paying for factory and storage, shipping and packaging the product, and employee wages (and these only tend to get higher if you source locally in countries that have minimum wage).
“You don’t get paid for the hour. You get paid for the value you bring to the hour.”- Jim Rohn Share on X
At the exact opposite, digital platforms such as Upwork, Elancer, and most importantly Fiverr have created a landscape where developed countries are able to buy services that used to cost ten times more several years ago when these platforms were not available.
For example a logo designer can no longer afford to charge $500 – $1000+ for a brand logo, because overseas talent have the same tools available to them and online tutorials through YouTube where they can be self-learned in this art and provide it at a much cheaper rate due to the weakness of their local currency.
Thanks to the Internet, this new model and globalization really demolishes the notion that you need to pay a high price to get the best quality.
We Must Charge Less To Sell More
Unless you’re selling fresh fish in an Asian fish market, there’s not a fixed market price that you have to match.
In fact, the best thing you can do is to not match it in order to avoid creating choice difficulty. Preferably, you should decrease choice difficulty by setting a higher price.
You’re in business for a reason, and hopefully that is to provide something better than what is already out there. Make sure your (higher) price reflects this fact, and use competitor prices merely as benchmarks for your price positioning.
Once you convince your customers to pay higher prices, shift to making those increases stick. Share on X
One of the unintended consequences of price decreases is that you start targeting an entirely different segment, without being aware of this fact.
warningVolume is created by customer segmentation, charging different sets of customers different prices, and thus increasing volume and revenue.
Either way, lowering prices is mostly a bad idea, even if you feel forced to it by competitors.
When you add features to your product or even just improve it as a whole, you have a right to ask for more money from your customers, because you’re creating more value.
We’re in a Commodity Business
As one of the most dangerous pricing myths, it’s also one of the most prevalent and delivers the most significant damage to your bottom line.
warningWhen your sales reps believe your products are commodities, they shift strategy to competitive price cuts, slowly chipping away at your margins until there’s hardly anything left.
They finally work to convince you that your products and services have no incremental value. In short, your sales reps become your company’s worst enemy.
"It is critical and vital to an individual’s existence and a company’s survival that this false belief about price be removed from the culture or the company will cease to exist!" – Grant Cardone Share on X
Even worse, your customers begin to expect constantly-dropping prices and will negotiate harder with every deal. They’ll certainly never accept a price increase either.
Even if you are selling what is classically called a “commodity,” strive to differentiate yourself by providing value in the form of better service to your customers, whether that is on-time delivery, responsive customer service or R&D support.
warningGet your team out of the commodity mindset to build the pricing strategy you need to move your business forward.
Become completely convinced that competing solely on price is a business of Russian roulette. Sooner or later it turns out badly.
Price Optimization is Expensive
As with anything else, you can pay a fortune to really fine-tune your pricing. For some companies, this is the best investment they ever made, but it’s not all or nothing.
warningAn efficient optimization technique that won’t cost you anything is to change the incentive pay for your sales people.
Most companies base this pay on revenue rather than profit, which inevitably incentivises suboptimal discounting behaviour.
Pricing doesn’t have to be an expensive endeavor.
“A penny saved is still just a fucking penny.” – Dan Lok Share on X
There are a lot of cheaper alternatives to expensive consultants, and you can even get the ball moving by simply dedicating a small amount of time to pricing each week.
In fact, calculating fairly accurate upper and lower bounds for your pricing is very possible to do from just looking at current sales, your loss rate, and speaking with a few customers.
When you want to optimize even further, value based pricing brings a much higher confidence interval, taking research of consumer’s willingness to pay and calculating price bands.
Customers Are Not Ready
It’s not about the price. However this is every person’s default objection and something that every salesman falls for time and time again.
Earning business is ultimately about getting the buyer to fall in love with the product and/or getting the buyer to have complete and urgent confidence that the product or service offered will solve their problems better than any other!
"Sales people not customers stop sales." – Grant Cardone Share on X
Why do people go to a coffee shop when they can make it at home?, Why do people buy water in a bottle when they could get at it at home for free?
warningIt’s love of the product, it’s not about the price at all.
An effective salesperson has to be positive in outlook about people and believe in people. Buyers are human and they want to buy the right product service or idea and not make mistakes, if they don’t buy from you there was some you did not uncover from listening and asking the right questions, not the price or budget.
Final Thoughts
If pricing is a black box, you’re losing money. A lot of it. Therefore, let’s avoid some of the common myths to catalyze you into action so you can start capturing all of that lost cash you’re leaving on the table.
The truth is, the only way to get the high prices you want and need to run a thriving business is to become the go-to expert in your community.
People are more concerned with making the right decision that is going to get their problem solved then they are concerned with the amount of money that they spend.
warningIn other words, DOMINATE YOUR MARKET!
Offer the best products or services, CONSTANTLY over-deliver on client expectations, and create a community of clients that you treat like the most special people on Earth.
The goal is not to make the market think your prices are “fair.”
The goal is to make the market embarrassed for not paying you more, since you’re already giving them such incredible value!
Because when you really are the best at what you do in your community, your client base isn’t going to consider you an optional item in their budget.
In the toughest economic times, they’re going to look over their budget and find ways to trim everything BUT you.
If you enjoyed the article or have any comments, recommendations, or tips for improvement please do comment below.
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